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Subdued outlook for Singapore bond market

The bond market enjoyed steady growth in the first six months of this year with 259 new bonds issued. But market watchers say this is unlikely to be sustained into the second half of the year.

SINGAPORE: The bond market enjoyed steady growth in the first six months of this year with 259 new bonds issued, compared to 222 new bonds in the same period last year.

But market watchers say this is unlikely to be sustained into the second half of the year.

Forty-five new bonds were listed on the Singapore Exchange last month, raising S$20.8 billion -- about triple the amount raised in the same month last year.

The biggest bond listing was Indonesia-based energy firm PT Pertamina (Persero)'s US$1.5 billion 30-year bond.

Market watchers say the positive momentum so far this year has largely been driven by corporates in Asia pursuing growth in a favourable interest rate environment.

Lawrence Wong, executive vice president and head of Listings at Singapore Exchange, said: “The interest rate environment has been quite benign, stable and some might even argue trending a little bit down, so companies certainly want to capitalise on the situation.

“But at the same time, investors also feel more comfortable as they see the stabilisation of the interest rates."

Asia has seen record bond issuance so far this year, with some US$100 billion of credit issued in the last six months.

But going forward, market experts say bond issuance is likely to be subdued as rates are expected to rise.

Hartmut Issel, head of Equity, Credit & Macro APAC, Chief Investment Office, at UBS Wealth Management, said: “That's in contrast to the first half where rates and yields were actually falling. So what has been a tailwind now becomes a headwind with rising rates, so the situation's quite different and the momentum is unlikely to be sustained.

“We expect bond issuance, especially in the second half, to come down, possibly quite sharply actually."

Although supply is expected to slow down, market participants say demand from retail investors is likely to be sustained.

Wong Sui Jau, general manager of Fundsupermart.com (Singapore), said: “The hunt for yield actually hasn't reduced, not until interest rates rise to a level where even fixed deposit rates or rates from savings accounts are decent.

“But I don't think we're anywhere near that yet, so there'll always be the hunt for better yield. Bonds and bond funds are able to provide this without the kind of risk and volatility you have to take on by going into equity markets."

There are currently 1,742 bonds listed on the Singapore Exchange -- up 19 per cent compared to a year ago. 

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