Government issues $2.5bn worth of SGS bonds at auction

This will be the largest 5-year SGS bond issue in 3 years.

According to OCBC, The 5-year SGS bond tender closes at noon on 29 Mar, and MAS is taking $100m, leaving an effective issue size of $2.4b.The current 5-year benchmark bond is only yielding 0.92%, and the current bond-swap spread is trading around 95bps which is relatively close to average 3-year mean of 91bps.

OCBC believes, fair value and historical bond-swap spread tip the new 5-year SGS average bond yield at around 1.16%. Moreover, there is an upcoming $6.8b maturity of an original 10-year SGS bond due in July, and market liquidity remains ample, albeit average daily turnover for the 5-year SGS bond has dipped somewhat. The belly of the curve is also favoured as short-term SIBOR and SOR rates continued to be well-anchored despite elevated inflation. The auction’s bid-cover ratio should also be decent, likely above 1.7x, and the tail is likely to be contained within 10bps, amid ongoing MENA and Japanese nuclear crisis. There is a new 10-year SGS bond issue on 1 June.