2Y SGS bond ‘attractive enough’ to draw demand: UOB

The June 25 bond was first issued in 2015 but was retapped.

The central bank’s June 25 (2Y SGS) bond reopened for $3.2b after its first issuance eight years ago, which means new bonds will be issued to investors, UOB said.

The bond will increase supply outstanding for Jun 25 to $11.7b, making it the most liquid issue on the SGS curve. 

Historically, demand for the 2 Y tenor is inelastic because of management of banks’ regulatory reserve requirements.

But if the current interest rates remain unchanged, the 2Y SGS auction will post a yield of 3%, a first since 2007.

UOB also sees an unlikely lower demand as people still want to purchase the bond.

“The probability of a negative surprise for Friday’s auction BTC is low in our view, primarily due to the presence of inelastic demand for the 2Y tenor,” the analyst said.

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