Nomura warns SGD rate underperformance likely amid market unwind

The SORA fix has dropped significantly, averaging 2.5% in February.

Nomura entered a pay Mar-IMM SGD 2y versus US trade with a conviction level of 3/5, targeting a 25 basis point gain by the end of March, as Singapore dollar (SGD) rates have outperformed US rates since mid-January.

The SORA fix has dropped significantly, averaging 2.5% in February, which indicates temporary liquidity shifts, with S$NEER trading 125 basis points above the mid-point of the policy band, Nomura stated.

Nomura also noted loan growth in Singapore has been strong, especially in December, across both commercial and consumer sectors, which may lead to reduced bank receiving activity in the OIS market as the share of time deposits declines.

SGD rates appear expensive relative to the implied S$NEER metric. For the first time in four years, the implied SGD rate is trading above the 3-month SORA rate, reflecting possible easing expectations.

The firm also added the unwind of market positioning could lead to SGD rate underperformance, particularly in the front end of the curve.

Whilst markets expect tariff tensions to ease, Nomura remains cautious about potential tariff escalations. Such escalations could negatively impact Singapore’s growth and renew MAS easing expectations.