THE Singapore dollar bond market is limited by trading volumes, small size issuances and a lack of liquidity, according to top-ranked sellside individuals speaking to Asset Benchmark Research (ABR).
In order to deepen the market, sellside individuals highlight the need for bond repurchase agreements and the removal of an ex-dividend period in trading bonds, to bring better price transparency and greater market participation.
“Trading volumes are still minute relative to the US dollar corporate bond markets. Due to the nature of local currency bonds, the issue sizes are also small, thus the poorer liquidity and price transparency of the bonds,” explains one sellside participant.
“There is still a lack of pre-trade price transparency here, which hampers liquidity, turning investors to the US dollar markets. Price transparency will deepen liquidity,” agrees a multi-market participant with exposure to Singapore dollar bonds.
However, according to sellside participants, there are still a number of material ways to deepen and improve the market, several of which are currently unfolding. First, sellside individuals highlighted the need for the introduction of bond repos to allow for short selling. This should lead to greater liquidity and attract greater market participation. “Bond repo markets are not available; thus, markets do not have a proper avenue to short bonds,” explains one sellside individual based in Singapore.
“I think the government and regulators have tried their best to deepen the market by coming up with more market places for dealing (platforms) as well attempting to start a repo market for the corporate bond space,” comments a sellside individual .
Second, participants say that the practice of an ex-dividend period for bonds is leading to a lack of price transparency on certain platforms. The problem is essentially caused by a mis-match of static data which updates too slowly.
“One issue I would like to see (addressed) would be the abolishment of the Ex-Div practice for Singapore dollar bonds that are cleared via CDP (the Central Depository). Currently, bonds are following the same procedure as that of equities, where there is a period of Ex-Div. This is causing a lot of disruption to trade settlement as certain platforms may have the static data of this Ex-date incorrectly updated or delayed in updating,” explains one participant.
However, sellside participants are generally positive on the direction of the market, which has seen a recent diversification of issuers. For instance, Logan Property Holdings Company Limited are a traditional US dollar issuer, but recently made their debut in Singaporean dollar in April with a S$200 million (US$149 million) deal on April 16 2018.
“We witness the diversification of issuers coming to raise cash in the Singapore dollar market, a sign that the market is starting to grow deeper. This should lead to better liquidity as more participants/market makers get involved in this market,” explains a sellside participant.
Another sellside individual highlights that there are still good opportunities to be found in short-dated paper, given the prevailing environment of rising interest rates: “With rates trending up, focus will be on the higher yielding issues that are less sensitive to rates relatively. Some of the short-dated papers also offer good opportunities as investors choose to park their cash in such instruments while waiting for the right timing to deploy their cash.”
These data are part of ABR’s Asian Local Currency Bond Benchmark Review 2018.
Methodology
The Asian Local Currency Bond Benchmark Review is conducted in the first quarter of the year. Over 300 local currency bond investors including asset managers, hedge funds, private banks, insurance funds and commercial banks from 11 Asian markets namely China, CNH, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand take part.
Data sets include market penetration, market share/wallet share, buying criteria/client satisfaction, research content and the top individuals. To learn more about the Asian Local Currency Bond Benchmark Review please click here.
