Staying the course with Singapore bonds

Singapore bonds have not been immune to the recent global repricing in yields, but the broader investment case remains anchored in quality, resilience and diversification. This Q&A helps explain what has been driving the market, where opportunities
may still exist, and why quality and selectivity matter in today’s environment.

Q1. Why have Singapore bond yields been volatile recently?

Singapore government bond yields have risen alongside global yields, driven by resilient global growth and supply-shock inflation, stemming from higher energy prices amid the ongoing Middle East conflict. Markets have consequently shifted beyond paring
expectations for monetary easing to pricing in rate hikes across major central banks and some emerging-market economies. Meanwhile, strong capital demand from hyperscalers investing in AI infrastructure, together with elevated government borrowing
to finance sizeable fiscal deficits has intensified competition for long-term funding, adding to upward pressure on yields and volatility, particularly at the long end.

Year to date, SGD bonds have remained resilient and are only modestly down by -0.7%¹, outperforming comparable bond segments, including US Treasuries, US and Euro Investment Grade corporate bonds (in local currency terms). Fig 1.

Within SGD bonds, quasi sovereigns and IG corporate bonds outperformed, beneffting from their shorter duration relative to Singapore government bonds.

Q2. What is the outlook for the Singapore economy and for interest rates?

Singapore’s economy remains resilient, supported by strong electronics exports and artificial intelligence-related manufacturing activity. Singapore’s Ministry of Trade and Industry raised Singapore’s 2026 growth forecast to
4.5% to 5.5% from 2.0% to 4.0% in August. Meanwhile, inflation is expected to remain contained at 2.1%². However, stronger growth could keep policymakers vigilant, and markets may price in further policy tightening should growth
or inflation surprise on the upside.

If the Monetary Authority of Singapore (MAS) tightens the SGD Nominal Effective Exchange Rate (NEER), allowing the SGD to appreciate faster, this will lower import prices and dampen domestic inflation. A faster-appreciating SGD NEER implies lower
SGD interest rates relative to USD and global rates, as the currency appreciation compensates investors for the rate differential. Broadly, short-end SGD rates are influenced more by domestic liquidity conditions while longer-dated SGD bond
yields will be influenced by global yields although the SGD NEER acts as a partial buffer. A faster-appreciating SGD NEER also drives demand for SGD assets, including SGD bonds.

From a technical perspective, the SGD bond market should also continue to benefit from the net negative supply trend which is in its 4th consecutive year. Fig 2.

Q3. What do you like in Singapore fixed income today?

SGD bonds generally have lower volatility and a better risk-return profile compared to USD bonds. We continue to see merit in high-quality Singapore dollar (SGD) credit, particularly
investment grade corporate and quasi-sovereign bonds. These tend to have relatively shorter duration and offer a yield pick-up when compared against Singapore government bonds. We currently have a neutral duration stance but remain agile on
duration management given evolving interest rate expectations globally.

While markets currently have a bearish view on duration, a faster than expected resolution to the Middle East confliction and subsequent moderation in energy prices could ease inflationary pressures and support a rebound in the bond market.

Q4. What risks should investors be aware of going forward?

The main risks include further rises in global bond yields, inflation surprises, geopolitical escalation, energy price shocks and any sharp correction in risk assets. These factors could contribute to further volatility in SGD bonds, even
if the underlying credit fundamentals remain sound.

An active manager can help to mitigate these risks through flexible duration and yield-curve positioning and selective exposure to issuers with sound balance sheets and resilient cash flows. The manager can also diversify across maturities
and sectors, maintain liquidity and use periods of market volatility to add high-quality bonds to the portfolio at more attractive yields. Fig. 3.

Q5. Why should investors stay invested or consider investing in Singapore dollar bonds?

Although SGD bonds are not immune to global rate movements, they have historically been a source of defensive income and diversification in portfolios.
SGD bonds have delivered annualized returns of 5.1% over the last 3 years³.

Their appeal is underpinned by:

• Singapore’s strong sovereign fundamentals – Singapore is one of only 10 AAA-rated countries in the world.
• Supportive demand-supply dynamics – There is resilient institutional demand for SGD bonds as assets managed by institutions (eg insurance companies) in Singapore continue to grow.
• Relatively robust balance sheets of Singapore corporates and banks – The total debt to asset ratio of Singapore companies is superior to that of North American and other Asian companies. Fig. 4. This should help to keep the default risk
  of Singapore corporate bonds low.

For SGD-based investors, investing in domestic currency bonds reduces the foreign exchange risk and hedging costs associated with overseas bond allocations.

For existing investors, the key message is that although SGD bonds have not been immune to the global sell-off, they have generally shown lower sensitivity to US rates. In other words, the recent price action in SGD bonds has been more a function
of the repricing in global rates than a breakdown in the SGD bond or Asia Fixed Income story.

For prospective investors, the correction has materially improved the forward-looking income opportunity. The same rise in yields that created short-term mark-to-market pressure has also resulted in more attractive starting nominal yields,
real rates and carry for investors allocating to SGD bonds today.