Singapore’s political fad is attracting the bank’s funding rush

The logo of DBS Bank and HSBC Bank in Singapore. Global banks are rushing to sell bonds in Singapore, where unique monetary conditions have opened a favorable borrowing window that has put the city-state’s debt markets on track for the biggest year of bank capital raising in more than a decade.

Joseph Nair | Nurphoto | Getty Images

Global banks are rushing to sell bonds in Singapore, where unique monetary conditions have opened a favorable borrowing window that has put the city-state’s debt markets on track for the biggest year of bank capital raising in more than a decade.

The Central Bank of Singapore controls monetary policy through its currency rather than short-term interest rates, and as a result the benchmark Singapore Overnight Rate Average (SORA) has lagged an increase in comparable US dollar borrowing costs.

Unlike other low-interest-rate destinations in Europe or Japan, the Monetary Authority of Singapore is also interested in keeping the Singapore dollar stable and reducing currency risk, and investors’ appetites have been large.

Nearly S$12 billion ($8.5 billion) was raised in Singapore’s bond markets from Jan. 1 to July 6, the largest for the period since 2019, according to data from Refinitiv, with June the largest by value Month for issuance since September 2021.

About half of the S$3.5 billion raised in June and one-fifth of the total raised year-to-date is Tier 2 debt issued by banks for reserve capital requirements — the largest chunk of this type of debt Singapore has seen in recent years time has seen 10 years.

“The debt markets here are still pretty good, rates haven’t risen significantly,” Daryl Ho, senior investment strategist at Singapore’s DBS Bank, said at a briefing, in contrast to deteriorating conditions in larger markets.

“Of course you will attract many issuers.”

Through June, SORA, a volume-weighted calculation for unsecured interbank loans and a benchmark for longer interest rates, averaged about 1% versus an average of just over 1.2% for overnight dollar LIBOR.

Private banks have led solid investor demand. UOB, the bookrunner for a S$900 million Tier 2 bond issue for HSBC in June, said it was oversubscribed with private banks being the biggest buyers – and that 5.25% was a competitive price.

“Singapore dollar trades were priced about 20 to 25 basis points tighter than what they would have gotten in the US dollar market,” said Carolyn Tan, UOB’s head of bond debt markets. HSBC had no comment.

Lenders such as BNP Paribas, ABN Amro and Barclays also recently sold Singapore dollar bonds. Barclays’ S$450m alternative Tier 1 deal last week had a coupon of 8.3%, versus a coupon of 8.875% on £1.25bn ($1.5bn) , which were raised a week earlier.

“I would expect a lot of bank treasurers to look very closely at this market,” said Ken Wei Wong, Barclays’ head of Asia-Pacific Fixed Income Syndicate.

“There is momentum… given the shift in G3 (currencies).”

Money market futures are priced to remain so, with three-month Eurodollar futures tracking the cost of borrowing US dollars abroad, showing traders interest rates will hit 3% by year-end.

“Financial institutions are likely to be proactive,” said Andrew Wong, vice president of credit research at OCBC Bank in Singapore.

“Right now, the Singapore dollar market is relatively cheaper than other markets. As long as this momentum continues, we expect financial institutions will continue to issue in Singapore dollars.”

https://www.cnbc.com/2022/07/12/singapores-policy-quirk-lures-bank-funding-rush.html Singapore’s political fad is attracting the bank’s funding rush

Joshua Buckhalter

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