Chart of the Day: SGS Swap Rate Curve

OCBC says the 30-year swap rate traded 4bps lower for the past month, defying the rest of swap curve.

OCBC said:

With a recent plethora of SGD corporate bond issues, investors are currently somewhat spoilt for choice, especially with the attraction of a yield pick-up and for usually shorter tenors.

While insurance houses still need their asset-liability matching, which coupled with some long-term institutional funds, should ensure reasonable support for this longest-dated SGS paper, nevertheless, we could also see a relatively long tail for the maiden 30-year SGS bond auction on Wednesday.

Retail and private bank interest is expected to be very limited for such a long tenor, given a likely yield of 3% or less. A good gauge could be the two past 20-year benchmark SGS bond auctions of $2.5 billion and $2 billion in March 2007 and September 2010 which saw relatively long tails of 10-11bps.

Moreover, we tip fair value for the new 30-year bond yield at the 2.8-2.9% range, which is below the cut-off yields fetched by the earlier 20-year SGS bond auctions in 2009-2010.