SINGAPORE: Benchmark rates have fallen in the Singapore dollar bond market, making for conducive conditions for new issues early in 2015 as issuers begin refinancing S$11.13bn (US$8.5bn) of bonds due to mature in 2015.
The 10-year Singapore dollar SOR tumbled some 42bp in the last three months to 2.25% on December 16 from 2.675% on September 19.
Simultaneously, government bond yields have also dipped at the long ends of the curve. The 10-year ended last year at 2.59%, but was at 2.17% on Monday.
Both benchmarks have moved in tandem with long-dated US Treasury yields. The 10-year UST yield was around 3.0% a year ago, but was quoted at 2.12% on Monday.
Analysts are predicting that the US Federal Reserve will start to raise rates next September or October, and DBS researchers predict that the 10-year SGS yield will rise to 2.35% in the first quarter, before gradually increasing to 2.65% in the last quarter of 2015.
This paves the way for a rush to market early in 2015 as issuers rush to lock in low rates, potentially boosting bond volumes next year. At the same time, investors remain hungry for yield, and have driven new issues to S$22.55bn this year, up 28% from S$17.6bn in 2013, according to Thomson Reuters data.
"As long as rates remain low, there is going to be appetite, even for high-yield instruments, based on the most recent response to HY bonds and enquiries received in Singapore," said one credit analyst for a private bank.
The potential pool of refinancing deals is slightly larger than the S$9.4bn worth of bonds that expired this year. A sizable S$4.5bn worth of maturing bonds will come from government-linked entities and large corporate borrowers, raising the possibility that such high-grade issuers could finally visit the bond market.
Among them is a S$600m sukuk due in August from Danga Capital, the funding vehicle of Malaysia's Khazanah Nasional, as well as S$520m in two issues from SP Power Assets that will mature in April and August.
Over the last two years, high-grade issuers have been largely absent from the local bond market, while small and mid-cap issuers have driven new issue numbers to a record. However, a continued oil price slump resulted in a selloff in high-yield issues in early December, and that may be just the opportunity large corporations have been seeking.
"The high-yield market will be rather subdued going into the New Year because people have become unsure of how global economies will do," said one debt syndicate head with an Asian bank.
"With the HY names sidelined, high-grade and GLC names will have a clearer runway and I see them emerging in the first quarter of next year."
Coming out earlier in the year will be seen as a strategic move to catch a downward trend in the long-dated benchmark rates used in the local bond market.
In addition to issuers preparing to refinance maturing debt, real-estate companies are also expected to tap the bond market to fund their repurchases of unsold properties to avoid paying a hefty tax penalty to the government.
"There will also be more bond-buyback opportunities, and more companies will embark on liability management exercises, which will lead to more consent-solicitation tenders, as well," said another debt syndicate banker with a foreign bank.
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