S’pore 5-year note sale gets lowest yield in 26 years

[chew]

Why will people lock their money in a 5 year bond that gives a return less than the inflation rate?

i think most interests are probably foreign - imagine if ur soverign bond is downgraded from AAA and u have a long duration need - with SGD on an appreciating path due to inflation and their numeraire getting sold off on recession, the net returns == 50bps + FX gains

prob better this way than to hold onto their local bonds which are getting sold off anyway.

Banks have to hold a large chunk of these bonds for liquidity purposes. Add to that investors looking for FX gains, if that's their primary investment thesis, these bonds have important qualities of being risk-free and highly liquid with narrow bid offer spreads.

[a74henry]

This is definitely not my kind of investment.

[swakoo]

Why will people lock their money in a 5 year bond that gives a return less than the inflation rate?

i think most interests are probably foreign - imagine if ur soverign bond is downgraded from AAA and u have a long duration need - with SGD on an appreciating path due to inflation and their numeraire getting sold off on recession, the net returns == 50bps + FX gains

prob better this way than to hold onto their local bonds which are getting sold off anyway.

Banks have to hold a large chunk of these bonds for liquidity purposes. Add to that investors looking for FX gains, if that's their primary investment thesis, these bonds have important qualities of being risk-free and highly liquid with narrow bid offer spreads.

If looking for FX gain or/and liquidity with AAA currency, looking at shape of yield curve (below), another alternative with just a little less yield is the 2-yr bond. If expecting CBs to increase rates within the next 2 years, wouldn't this be a better alternative?

[Image: yieldcurve.gif]

[chew]

Why will people lock their money in a 5 year bond that gives a return less than the inflation rate?

i think most interests are probably foreign - imagine if ur soverign bond is downgraded from AAA and u have a long duration need - with SGD on an appreciating path due to inflation and their numeraire getting sold off on recession, the net returns == 50bps + FX gains

prob better this way than to hold onto their local bonds which are getting sold off anyway.

Banks have to hold a large chunk of these bonds for liquidity purposes. Add to that investors looking for FX gains, if that's their primary investment thesis, these bonds have important qualities of being risk-free and highly liquid with narrow bid offer spreads.

If looking for FX gain or/and liquidity with AAA currency, looking at shape of yield curve (below), another alternative with just a little less yield is the 2-yr bond. If expecting CBs to increase rates within the next 2 years, wouldn't this be a better alternative?

[Image: yieldcurve.gif]

A fair point. In defence, the us yield curve is only marginally steeper to the 5 yr and this is a new benchmark issue.