Singapore-US Bond Yield Gap Set to Widen on Diverging Debt Supplies

Bloomberg reported that the yield gap between Singapore's ultra-long bonds and US Treasuries is expected to widen, with Singapore's relatively muted debt issuance juxtaposed against increasing US debt supply.

The current gap, the largest on record, sees 30-year Singapore government bonds trading at roughly 200 basis points below comparable US Treasuries. This divergence is expected to intensify if US President Donald Trump's policies fuel higher inflation and necessitate increased borrowing, while Singapore's limited sovereign debt issuance keeps local rates suppressed.

"The yield on 30-year Singapore Government Securities could see a further discount relative to 30-year Treasuries if US fiscal worries kick up another notch," Eugene Leow, fixed-income strategist at DBS Bank, told Bloomberg. He added, "The 30-year Singapore bond supply is constrained in the short-term ahead of the auction in April."

US 30-year yields surged to 5% in the lead-up to Trump's inauguration, fueled by market concerns that his tax-cutting and tariff policies would stoke inflation. While yields have since moderated, analysts caution against viewing this as a sustainable trend.

Meanwhile, the Monetary Authority of Singapore (MAS) is predicted to ease its monetary policy, a move likely to involve weakening the Singapore dollar and pushing interest rates higher. While this could potentially narrow the yield spread between shorter-dated Singapore and US bonds, the longer-end of the yield curve is expected to be driven primarily by the bond supply outlook.

Singapore's low debt supply has already led to strong demand at auctions, keeping yields anchored. The last 30-year bond auction in September 2023 saw a bid-to-cover ratio of 2.20 times, the highest since June 2020. The next auction in this tenor is scheduled for April 28th.

Despite Singapore's high government debt-to-GDP ratio, which stood at nearly 180% in 2023 according to IMF data, analysts downplay fiscal concerns. This is due to the government's practice of investing its borrowings in the nation's reserves, as explained by the Ministry of Finance.

Standard Chartered Plc's Kaushik Rudra and Jonathan Koh, both of the bank's fixed income research team, predict a sustained wide spread between Singapore and US bonds. "There will be ample supply in Treasuries, while in Singapore it will remain scarce," they said.