DBS Bank chief investment officer Hou Wey Fook said investors sitting on T-bills may want to consider broadening their fixed income allocation to include bonds with a longer time-to-maturity. — The Straits Times
SINGAPORE: A recent sell-off in United States bonds, driven by rising fiscal risks, persistently high inflation and slower-than-expected rate cuts, has pushed US Treasury yields to their highest levels since the pandemic.
The 10-year US Treasury yield on Jan 13 rose to 4.788%, the highest since November 2023. This surge has spilled over into global markets, causing yields in major sovereign debt markets, including Britain’s 10-year gilts and Japan’s 10-year government bonds, to rise sharply.
Germany’s 10-year bond yields, which are the benchmark for the eurozone, rose to a seven-month high. Singapore’s 10-year government bond yields have also risen, climbing from around 2.7% to 2.8% in December 2024, to over 3% this month.
Returns on shorter-term six-month Treasury bills in Singapore have risen in tandem with the increase in longer-dated bond yields here.
In the last auction for six-month T-bills in Singapore on Jan 2, the cut-off yield rose to 3.05% from 3.02% during the Dec 19, 2024, auction and 3% in the Dec 5, 2024, auction. The next auction for six-month T-bills will take place on Jan 16, while 2025’s first auction of one-year T-bills will happen on Jan 23.
DBS Bank fixed income research head Eugene Low said the yield for six-month T-bills should hover around 3%, unless the US Federal Reserve (Fed) cuts rates further in 2025. Leow had earlier expected T-bill yields to soften at around 2.5% by the middle of 2025. However, the decline in T-bill rates has stalled on the back of a flurry of firm US economic data, making the case for further interest rate easing less compelling, he said.
T-bills became popular with retail investors here when yields climbed along with interest rate hikes in the United States in 2022 and 2023. Yields on six-month T-bills hit a peak of 4.4% on Dec 8, 2022, while yields on one-year T-bills rose as high as 3.87% on Jan 26, 2023.
DBS Bank chief investment officer Hou Wey Fook said investors sitting on T-bills may want to consider broadening their fixed income allocation to include bonds with a longer time-to-maturity.
Hou added that absolute bond yields, or the return an investor can expect to receive from a bond, are much higher today than they were a decade ago, making them attractive investments for investors at their current price points.
Daryl Ho, DBS’ senior investment strategist, noted that the Fed “gets a bit concerned” when yields on US Treasuries are close to 5%.
“The last time the 10-year (US Treasury yield) was approaching this level was around 2022, and the Fed was actually quite concerned back then that there was an unintentional tightening of financial conditions,” he added. — The Straits Times/ANN
