Investors turn to Singapore government bonds as Middle East tensions escalate

Further escalation of tensions could trigger a 5 to 10% decline in global equities.

Investors are increasingly turning to Singapore government bonds as a safe haven amidst heightened global volatility and escalating tensions in the Middle East, according to a report by RHB.

The report noted that Singapore’s investment-grade status and relatively stable SGD make it particularly resilient compared with other ASEAN markets, which may see fund outflows in the current environment.

Global markets are bracing for turbulence. Analysts caution that a further escalation of Middle East tensions could trigger a 5–10% decline in global equities, whilst safe-haven assets such as gold and US Treasuries may see inflows.

Gold could move toward $7,654 (US$6,000) per ounce, and crude oil prices could rally toward $179 (US$140) per barrel, reflecting patterns seen during the Russia–Ukraine conflict. US 10-year Treasury yields are expected to fall to 3.0–3.5% as risk aversion deepens.

Market sentiment has shifted toward caution. The RHB Risk Sentiment Index posted an unexpected drop last Friday, linked to concerns over a potential rise in US global tariffs under Section 122.

Elevated VIX readings, a narrower US 2–10-year yield spread, and softer equity inflows suggest that global equities, particularly the S&P 500, may face downward pressure in the coming weeks.

Analysts advise a defensive investment approach, recommending underweight equities, overweight safe-haven assets and energy, and overweight defensive fixed income. Global fund flows may increasingly favor redemptions as investors reassess exposure to potential black swan risks.

Within ASEAN, Singapore stands out as a regional safe haven, while other markets may experience outflows due to intensifying geopolitical uncertainties.

Maybank Research said Singapore’s exposure to the Iran conflict is mostly indirect, driven by oil prices and capital flows rather than trade. Transport companies may face higher jet fuel costs and airspace disruptions, whilst maritime issues could boost air freight volumes.

“We believe Singapore should continue to benefit from safe-haven flows leveraging its ‘certainty premium’ offered by policy and political stability and strong fiscal capacity to deal with downside risks,” the bank said.

The Monetary Authority of Singapore also earlier confirmed that the country’s foreign exchange and money markets are functioning normally. The Singapore dollar (S$NEER) remains within its policy band, helping curb imported inflation.

Maybank noted that banks have limited direct loan exposure to the Middle East but could gain from safe-haven inflows boosting wealth AUM and fees.

A slower pace of Fed cuts may support net interest margins, though higher input costs could strain asset quality.

Singapore secured third place in the 2026 FM Resilience Index, the annual evaluation by Factory Mutual Insurance Company ranking 130 countries and territories based on their business environment resilience.

Europe led the top 10, with Denmark taking the number one spot, whilst the United States dropped out of the top 10. In Asia, countries like India recorded notable improvements in their resilience scores.

Singapore’s strong performance was driven by its stable governance, advanced digital infrastructure, and robust engineering standards, establishing it as a highly resilient hub for businesses confronting climate, cybersecurity, and operational challenges.

Meanwhile, commodity markets are also under pressure. Brent crude could reach $179 (US$140) per barrel if tensions persist, whilst gold demand remains elevated.

Additionally, rising energy and commodity prices may reinforce global inflationary pressures, though the exact impact on central bank policy remains uncertain.

Analysts continue to expect two US Fed rate cuts totaling 50 basis points in 2026, though the balance of risks now leans toward one or no cuts.

Geopolitical developments pose additional risks to global supply chains, aviation routes, and regional trade flows. Higher energy costs disproportionately affect energy-importing economies and could narrow corporate margins, reduce household spending, and increase market volatility.