Demand-supply dynamics is another factor favouring SGD credit holders. New issues dwindled to $16.9 billion in 11M2023 from $24.6 billion in the same period the previous year. Issuances were less forthcoming, as several issuers were averse to locking in rates during high interest rates. Bank loans were preferred, which tended to be shorter in tenor but remained accessible at relatively competitive rates. Meanwhile, demand for SGD credit has remained stable or increased, evidenced by ~60bps (basis points) tightening of credit spreads over 11M2023.
Rates are up, bonds are down and investors frown — 2022 was characterised by significant losses of –5.4% for the Singdollar (SGD) credit market, the worst returns in over 10 years. Fast forward to today, the SGD credit market has more than clawed back its losses in 2022, delivering total returns of 6% from January to November (11M2023).
Part of the outperformance is driven by carry, with the rise in interest rates stretching yields of SGD credits to over 4% for high-quality bonds earlier in the year. Subsequently, in November, investors benefited when interest rates tumbled from their peak, like the recoil of a stretched rubber band, due to increasing expectations of Fed Fund rate cuts in 2024.
