Chart of the day: Will Singapore Government Securities survive another global bond sell off?

After the back-to-back turbulence in Q2.

The past quarter has been a turbulent one for the global bond market. The market suffered two bond sell offs, once in April and then again in June.

According to UOB, Singapore Government Securities (SGS) were able to survive the April turbulence but underperformed during the sell-off in June, highlighting the fact that the performance of SGS has been inconsistent
relative to US treasuries (UST) and Bunds.

"The highlight in Q2 2015 has been the unexpected ferocity of a Bund led global bond sell off. While SG rates markets have not been able to resist the directional pull of risk re-pricing, SGS did suffer relatively less price damage/yield increase in phase 1. However, SGS outperformance in phase 1 could not be sustained and in the days leading up to the phase 2 sell off, SGS significantly underperformed with yield and curvature increases that exceeded even those experienced by Bunds," UOB said.

However, the underperformance in phase 2 was mainly driven by "idiosyncratic factors", particularly the 10Y SGS auction on 27th May.

"Concession building ahead of auction supply caused SGS to underperform even while the UST and Bund curves were undergoing consolidation after phase 1. these factors are likely to play a diminished role going forward. In addition to waning post auction drag, there are other reasons to expect better relative performance from SGS should there be another bout of Bund led liquidations," UOB said.

These factors include the timing of the SGS auction in Q3, historically high SFS yields, and the lack of widening interest rate differentials, the report said.