SGD Rates: No need to frontrun the Fed

SGD rates are too elevated compared to the Fed.
Eugene Leow20 Oct 2021
    Photo credit: Unsplash Photo

    Short-term SGD rates have front-runned Fed hikes. We noted yesterday that USD rates were very aggressive in factoring in Fed tightening, pricing in almost two hikes by end-2022. SGD rates were even more aggressive, with the Monetary Authority of Singapore (MAS) selling 1M and 3M bills at 0.55%. This is a considerable step up from the 0.31% and 0.4% (for 1M and 3M tenors) registered at the previous auction. The market did get some hints that liquidity may be tightening somewhat with the 6M SORA OIS rising by about 8bps since last week. However, we are not convinced that this rise in short-term SGD rates is sustainable, especially since USD rates of similar tenors have been anchored. Notably, there have been no obvious signs of stress. With the USD taking a breather, Asia FX (including the SGD) are recovering some lost ground. We still expect the period where SGD rates trade at a premium over USD rates to be “transitory.” When the Fed hikes in earnest in 2023 (or late 2022), the passthrough unto SGD rates would be low if SGD rates stay as elevated as they are now. We think that the premium is too large in the 2Y-3Y tenors vis-à-vis SOFR OIS. For SGS, we think the 6M, 1Y,2Y and 15Y tenors are relatively cheap (compared to UST) for investors willing to take on currency risks. 


    Eugene Leow

    Senior Rates Strategist - G3 & Asia
    [email protected]

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