We had quite a few notable results in the fixed income world yesterday that I thought was worth writing on quickly.
Singapore Savings Bonds massively undersubscribed – Full $200,000 allotment!
The first is the Singapore Savings Bonds allotment results.
$700 million of Singapore Savings Bonds were on offer.
Receiving only $477 million in applications.
This was massively undersubscribed – so anyone who applied would get full allotment up to their individual maximum of $200,000.
Remember how a few months back everyone was worried that at $9000 allotment a month it would take years to max out your full $200,000 Singapore Savings Bonds allotment?
Well jokes on you – because half a year later and we’re getting full $200,000 allotment on Singapore Savings Bonds in 1 month.
If anything, this should be a lesson on how quickly things can change in markets.
One moment everybody is dying to buy Singapore Savings Bonds, literally before you know it and nobody wants Singapore Savings Bonds again.
I bought quite large amounts of Singapore Savings Bonds
For what it’s worth, I actually bought quite meaningful amounts of Singapore Savings Bonds this time around.
As shared previously, I’m still holding to quite a bit of 2019 Singapore Savings bonds paying me 2% yields.
So it was pretty much a no brainer to redeem them and flip them into the February Singapore Savings Bonds – which pay 2.84% for the first 6 years.
Why not buy T-Bills or Fixed Deposit?
Yes, yes, I know that T-Bills and Fixed deposit have 4% plus interest rates.
But I still bought the Singapore Savings Bonds because:
(1) they have liquidity – I can get the money back very quickly with accrued interest and no penalty.
And (2) – they give the optionality to hold up to 10 years.
You know, just in case I am completely wrong about the interest rate outlook and they get cut to zero in 2023.
The very optionality alone is worth something.
And unlike with 10 year SGS (Singapore Government Security) bonds, you don’t take on any duration risk with Singapore Savings Bonds.
If you buy a 10 year SGS and interest rates go up, you will suffer capital losses on your bonds (price trades inversely to yield).
You don’t have these problem with Singapore Savings Bonds, they can be redeemed any time from the government with no capital loss.
10 year Singapore Government Security Auction closes at 2.86%
Talking about 10 year SGS.
We just had a 10 year SGS auction close on 27 Jan 2023.
And the yields came in at 2.86%
I suppose it’s not unexpected given that the 10 year is trading at 2.8ish these days (so this result is generally in line with market pricing).
But it’s still a shock when you see the 10 year yields going down so sharply.
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This will not end well…
I shared detailed macro views in the macro piece earlier.
But the long and short – is that I don’t think this will end well.
The sharp easing in financial conditions is coming right as inflation is starting to come off its peak.
If left unchecked, it could result in a meaningful recovery in economic growth – and inflation.
Which could require a further round of tightening down the road.
The Feds are going to have a very tricky time at next week’s FOMC.
Especially since the market is already pricing in close to 100% certainty they will only raise by 0.25% and not 0.5%.
The messaging from them is going to be crucial.
This is a market that is starting to fully price in a soft landing. How do you convince them that you will still do what it takes to fight inflation, and not be cutting rates in the second half of 2023.
Boy, I do not envy Jerome Powell at all.
As always, this article is written on 28 Jan 2023 and will not be updated going forward.
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