Market Summary

Yield Movements

Between 1 June and 15 August, Singapore's local currency (LCY) government bond yields declined for all tenors. However, short-term yields remain elevated due to the impacts of tightened liquidity. The yield curve for LCY government bonds shifted downward during the review period, following the movement of government bond yields in the United States as demand for safe-haven assets increased. Singapore's investors' flight to safety was triggered by the escalating trade war between the People's Republic of China and the United States, a weak global economic growth outlook, and the slowing domestic economy threatening the prospects of trade-dependent Singapore. The yield spread between 2-year and 10-year government bonds contracted during the review period, adding to concerns that Singapore may be entering a recession.

Size and Composition

Singapore's LCY bond market expanded 2.3% quarter-on-quarter (q-o-q) in the second quarter of 2019 to SGD429.2 billion (USD317.2 billion) from SGD419.7 billion in the first quarter of 2019. The growth corresponds to a 9.9% year-on-year jump from SGD390.4 billion in the second quarter of 2018. The rise in the LCY bond market was supported by the growth of both LCY government and corporate bonds, which expanded 2.7% q-o-q and 1.7% q-o-q, respectively.

Policy, Institutional and Regulatory Developments

On 24 May, the Monetary Authority of Singapore announced that it would gradually replace 24-week Monetary Authority of Singapore bills with 6-month Singapore Government Securities (SGS) bills starting in July. The switch was spurred by the SGS market's continued growth and development, with recent years seeing a steady increase in outstanding SGS bills and bonds. The growth was attributed to demand from financial institutions for high-quality liquid assets and from retail investors for Singapore Savings Bonds. The switch was also meant to meet the demands of an expanding investor base for short-term SGD-denominated securities as SGS bills become more accessible to a wider range of investors such as asset managers, corporations, and retail investors.