DBS Look Into SGD Rates Post-MAS

DBS write “in line with our out of consensus call, the Monetary Authority of Singapore paused on further tightening.”

• “From a rates perspective, there are two takeaways. First, short-tenor SGD rates should stabilize. Between episodes of FX stress, liquidity conditions, Fed hikes and shifting policy expectations, the spread of short-term SGD rates over USD rates finally settled into a more benign range (between 100-150bps) over the recent few months. We think that gyrations in SGD rates should be more muted going forward as the tightening cycle in Singapore and the U.S. draws to a close. Even if the Fed hikes by another 25bps in May, we doubt that there will be material passthrough unto SGD rates. Instead, SORA, T bills and MAS bills (all of which have come off their recent respective highs) should be largely rangebound.”
• “Second, investors will start to ponder about the prospect of twin loosening (by both the MAS and the Fed) over the coming few quarters. Amidst a cloudier growth outlook and likelihood of further fall in inflation, questions about a pivot (later this year) are inevitable. The market is already pricing considerable cuts in the USD space and it might make sense to pre-empt some loosening (perhaps flattening of the SGD NEER slope) down the line. If we consider a scenario where a large recession is more probable a few years later, SGD rates in the belly tenors might well underperform USD rates from a receive perspective (see here). Some of this appears to be playing out.”