Here's how S-REITs are affected by government bond hikes

Will they crumble under the pressure?

According to DBS, S-REITs stock prices remain under pressure from further hikes in government bonds.

They said that their Jun’13 report that called for value hunting within the S-REITs has met with little success.

Here's more from DBS:

While we were right in our observation that S-REITs earnings will continue to show resilience and exhibit further growth ability, we have, however, over the past 2 months seen further pressure on S-REIT’s stock prices, with the FSTREI falling by a further 4%.

One of the main reasons for the weakness in share price can be attributable to outflows from the S-REITs, due to expectations of further increases in government long bond yields, which had spiked >100 bps of a possible tapering down of QE3, impacting required returns for the S-REITs.

We believe that if the yield curve were to hold/rise from current levels, this could potentially affect opportunity cost for holding on to yield stocks like the S-REITs and result in higher borrowing costs when SREITs refinance their debt.

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