OCBC TREASURY RESEARCH - Singapore 9 November 2020 - OCBC Bank
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OCBC TREASURY RESEARCH
Singapore
9 November 2020
2021 SGS issuance calendar: Will
inversion in longer-dated yield curve
normalize?
Selena Ling Highlights:
Head of Research and Strategy The 2021 SGS bond issuance calendar comprises 10 scheduled auctions
+65 6530 4887 with 2 mini-auctions. Of the 10 scheduled SGS bond auctions, there are 8
LingSSSelena@ocbc.com re-openings and only 2 new bond issues. This is similar to the 2020 SGS
bond issuance calendar, so market reaction was relatively muted on Friday
(the day of the calendar release) itself. Some key highlights and
distinctions are as follows:
• The 2021 SGS bond re-openings starting with a 30-year in February.
This is followed by a 20-year reopening in September, a 15-year re-
opening in May, and two 10-year issues (a re-opening in April and a
new issue in July). As such, the longer-dated SGS bond supply is fairly
well-distributed through the year. In 2020, the SGS issuance calendar
had opted for a new 30-year issue in March 2020, a 10-year re-
opening in October, a 15-year re-opening in June and two 10-year
issues (both re-openings in January and August). Given the current
inversion in the back-end of the SGS yield curve, with the 30-year SGS
benchmark presently yielding lower than the 20-year benchmark (at
1% versus 1.1% respectively), the likelihood is that the early timing of
the 30-year re-opening in February 2021 with a potentially larger
issuance size could be targeted to alleviate the short squeeze and
address this yield curve inversion. Given the disinflationary
environment in Singapore, with headline and core inflation tipped to
contract in 2020, the real interest rate environment remains
favourable for now. However, if the reflation story materialises in
2021, with core CPI tipped to revert back to positive territory from
early 2021, then the bias could be for some modest steepening of the
yield curve into 2021, even if MAS monetary policy remains at status
quo come April 2021 MPS.
• A reshuffle from the 2-year to 5-year tenors: There are three 5-year
scheduled SGS bond auctions in June, August and November 2021,
versus only two 5-year offerings in July and November 2020. The
additional 5-year SGS bond offering in 2021 came at the expense of
the 2-year since there would only be two 2-year SGS issues in 2021
(both re-openings versus the three re-openings in April, May and
September of 2020). The 5-year SGS re-opening on 2 August will also
not be a benchmark bond.
Treasury Research & Strategy 1OCBC TREASURY RESEARCH
Singapore
9 November 2020
In addition, the 2021 SGS issuance calendar has pencilled in a 10-
year SGS re-opening in April 2021 and a new 10-year SGS issue in
July 2021, whereas there were no new 10-year SGS bond offering this
year as both issues were re-openings in January and August 2020.
• The two mini-auctions are tipped to be in June and October 2021,
which is slightly different in timings from the July and September
ones in 2020. However, the key difference is that the maximum
issuance size for the mini-auctions will be raised by 50% from $1b to
$1.5b in 2021 to allow greater flexibility to address unexpected
strong demand in tandem with the growth of the SGS market. Given
the 2020 global backdrop of a Covid-induced recession and major
central banks slashing interest rates (especially with the FOMC
committing to maintaining its near-zero interest rates out through
2023), the subsequent chase for yield has prompted strong demand
for longer-dated bonds - note the 2020 mini-auctions both comprised
of a $800m 30-year re-opening in July which saw a bid-cover ratio of
2.85x and a cut-off yield of 1.28%, while the $1b 30-year re-opening
in September fetched a bid-cover ratio of 2.08x and a cut-off yield of
1.15%. Basically in a world of low-for-longer interest rates, a nominal
yield range of around 1.2%-1.3% for the 30-year SGS bonds looked
fairly attractive when its 30-year US Treasury bond counterpart is
yielding an average of 1.5% for the year-to-date and other major
bond markets counterparts in Europe are already mired in negative
rates.
MAS also noted that market conditions in 2020 had been supportive of
SGS demand. Outstanding SGS bonds have grown steadily at an average
rate of around 7% per annum for the past five years, with the increase in
outstanding SGS bonds helping to meet demand for high quality assets and
improve secondary market liquidity. MAS tips that a similar growth pace for
SGS bonds is expected in 2021, subject to prevailing market conditions, and
the central bank will calibrate issuance sizes to facilitate an efficient and
liquid secondary market. These statements are similar to that a year ago
when the 2019 SGS issuance calendar was released.
Gross SGS bond issuance (including the mini-bond auctions) amounted to
$25.9b for year-to-date in 2020, which marked a 3.6% yoy increase from
that in 2019. This is actually a slowdown in the pace of SGS issuance growth
to a low single-digit growth compared to the double-digit growth seen in
2018-2019. In fact, there was little difference between the average size of a
SGS re-opening or a new issue in 2020 at $2.587.5b and $2.6b respectively,
probably attributable to the elevated demand for high quality assets, albeit
the issue sizes for the longer-tenors (20-30 years) tended to be somewhat
smaller between $800m-$1.8b. Assuming average issuance sizes remain
similar to this year (assuming $2.5b-$3b for each issue with the exception
of the 20-30 year tenors), gross issuance for 2021 could then amount to
between $25-$31b.
Treasury Research & Strategy 2OCBC TREASURY RESEARCH
Singapore
9 November 2020
A total of $17.1b of SGS bonds will mature in 2021, comprising $8b of 10-
year SGS bonds on 1 June 2021 and $9.1b of 5-year SGS bonds on 1 October
2021. After netting off the $17.1b redemptions due next year, this could
mean a net SGS bond issuance of between $8-14b in 2021 according to our
estimates.
MAS will also maintain the Singapore Savings Bond (SSB) program to meet
the savings needs of individual investors. Since inception in 2015, the SSB
programme has allowed about 120,000 individuals to hold more than $5.6b
as of 1 October 2020.
Treasury Research & Strategy 3OCBC TREASURY RESEARCH
Singapore
9 November 2020
Table 1: 2021 SGS issuance calendar
Announcement Auction Issue Maturity
Date Date Date Date Tenor New/Reopen Issue Code ISIN Code
01-Feb- 30-
20-Jan-21 27-Jan-21 21 01-Mar-50 year Reopen NA20100F SGXF27246101
01-Mar-
17-Feb-21 24-Feb-21 21 01-Feb-23 2-year Reopen N518100E SG31B8000001
01-Apr- 10-
22-Mar-21 29-Mar-21 21 01-Sep-30 year Reopen NZ10100F SG7U32949426
03-May- 15-
21-Apr-21 28-Apr-21 21 01-Aug-36 year Reopen NZ16100X SG31A9000002
01-Jun-
19-May-21 27-May-21 21 01-Jun-26 5-year Reopen NX16100F SG31A8000003
10-
21-Jun-21 28-Jun-21 01-Jul-21 01-Jul-31 year New NX21100N SGXF76205099
02-Aug-
21-Jul-21 28-Jul-21 21 01-Nov-25 5-year Reopen* N520100A SGXF29144064
01-Sep- 20-
20-Aug-21 27-Aug-21 21 01-Apr-42 year Reopen NA12100N SG3254976487
01-Oct-
21-Sep-21 28-Sep-21 21 01-Feb-24 2-year Reopen N519100A SGXF92110679
01-Nov-
20-Oct-21 27-Oct-21 21 01-Nov-26 5-year New N521100V SGXF12888537
Note: All bonds in the calendar will become benchmarks for their respective tenors upon issuance, except for
this bond which will remain as a non-benchmark bond.
Table 2: Mini-auctions
Bond Size
Auction Issuance Issue ISIN
Announcement Announcement Maturity Date Tenor
Date Date Code Code
Date Date
01-Jun-
03-May-21 19-May-21 27-May-21 TBA TBA TBA TBA
21
01-Oct-
01-Sep-21 21-Sep-21 28-Sep-21 TBA TBA TBA TBA
21
(Source: MAS)
Treasury Research & Strategy 4OCBC TREASURY RESEARCH Singapore 9 November 2020 Treasury Research & Strategy Macro Research Selena Ling Tommy Xie Dongming Wellian Wiranto Terence Wu Head of Research & Strategy Head of Greater China Research Malaysia & Indonesia FX Strategist LingSSSelena@ocbc.com XieD@ocbc.com WellianWiranto@ocbc.com TerenceWu@ocbc.com Howie Lee Carie Li Thailand, Korea & Commodities Hong Kong & Macau HowieLee@ocbc.com carierli@ocbcwh.com Credit Research Andrew Wong Ezien Hoo Wong Hong Wei Seow Zhi Qi Credit Research Analyst Credit Research Analyst Credit Research Analyst Credit Research Analyst WongVKAM@ocbc.com EzienHoo@ocbc.com WongHongWei@ocbc.com ZhiQiSeow@ocbc.com This publication is solely for information purposes only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. OCBC Bank, its related companies, their respective directors and/or employees (collectively “Related Persons”) may or might have in the future interests in the investment products or the issuers mentioned herein. Such interests include effecting transactions in such investment products, and providing broking, investment banking and other financial services to such issuers. OCBC Bank and its Related Persons may also be related to, and receive fees from, providers of such investment products. This report is intended for your sole use and information. By accepting this report, you agree that you shall not share, communicate, distribute, deliver a copy of or otherwise disclose in any way all or any part of this report or any information contained herein (such report, part thereof and information, “Relevant Materials”) to any person or entity (including, without limitation, any overseas office, affiliate, parent entity, subsidiary entity or related entity) (any such person or entity, a “Relevant Entity”) in breach of any law, rule, regulation, guidance or similar. In particular, you agree not to share, communicate, distribute, deliver or otherwise disclose any Relevant Materials to any Relevant Entity that is subject to the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID”) and the EU’s Markets in Financial Instruments Regulation (600/2014) (“MiFIR”) (together referred to as “MiFID II”), or any part thereof, as implemented in any jurisdiction. No member of the OCBC Group shall be liable or responsible for the compliance by you or any Relevant Entity with any law, rule, regulation, guidance or similar (including, without limitation, MiFID II, as implemented in any jurisdiction). Co.Reg.no.:193200032W Treasury Research & Strategy 5
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