Singapore Government Securities not immune to global bond selloff

Can the SGS continue to outperform?

Global markets have been grappling with bond selloffs in recent months, but Singapore Government Securities (SGS) have been relatively unscathed.

According to Victor Yong of UOB, SG rates markets’ outperformance can be traced to positional changes into and out of April’s MAS monetary policy statement.

"This outperformance is even more commendable considering that the global bond selloff has coincided with the concession building window of a 10Y SGS auction at the end of May," Yong stated.

However, domestic rates markets are not immune to global selloff. Yong noted that the SGS' continued outperformance depends on whether the current selloff is fundamental or technical in nature.

“The current consensus views that the more likely resolution would be in favour of the temporary position clear out hypothesis, thus in this scenario EU and US yields look to have better downside potential than SG since the auction set up fatigue has already resulted in SG yields retracing back to the middle of the high low range of April/May,” he said.

“If the consensus was proven wrong and the past month was only the beginning of a structural shift in the price of risk, we could expect SGS outperformance to continue given that SG vs. EU/US interest rate differentials are still wide over a longer historical time frame,” Yong added.