BOND MARKET OF SINGAPORE

By D.Preethika Roll No. 778

or buy and sell debt securities.BOND MARKET .MEANING • The bond market (also known as the credit. Mortgage backed 4. known as the primary market. Traders and Individuals. Corporate 2. and 5. •The primary goal of the bond market is to provide a mechanism for long term funding of public and private expenditures. usually in the form of bonds. Asset backed. They include : 1. or fixed income market) is a financial market where participants can issue new debt. Governments. •Bond market are classified into five types. Municipal 3. known as the Secondary market. •The participants include Institutional investors . Collateralized debt obligation funding . Government & agency 3.

financial services account for around 11% of Singapore’s GDP and there are more than 600 major financial institutions operating here. and a highly skilled workforce. •Today. •A key aspect of Singapore’s financial centre is its deep and liquid capital markets. Singapore is well placed as one of the key financial hubs for the region. • With a conducive business environment. an excellent infrastructure. investment banking and treasury services. Singapore offers a broad range of financial services including banking. insurance. and infrastructure assets. . aviation.FINANCIAL MARKET OF SINGAPORE •As an international financial centre. providing an extensive offering of investments in business trusts of shipping. Singapore has also grown to be a major real Estate Investment Trust (rEITs) market in Asia ex-Japan.

there was no need for debt financing. and structured securities. • The SGD bond market is made up of Singapore Government Securities (SGS).The Asian Financial crisis highlighted the need to develop a Domestic bond market •Now. The Singapore Government operated a prudent fiscal policy and consistently ran budget surpluses. Singapore did not have a well. .Functioning bond market before 1997. •As a result. regulations were fine-tuned in 2009 to qualify high-grade securities issued by foreign entities as regulatory liquid assets. hedging restrictions. with foreign entities accounting for more than a quarter of bond issuance. •The SGD bond market is fully accessible to all issuers and investors globally. SGS were then issued mainly to meet financial institutions’ statutory requirements. There are no capital controls. or withholding taxes5. the market’s profile is international in nature.BOND MARKET OF SINGAPORE •Like most Asian countries. Singapore has one of the most developed bond markets in Asia. quasi-government bonds. usually held to maturity. and rarely traded. Thus. corporate bonds.

the MAS issues SGS on its behalf. JP Morgan . As the fiscal agent of the Government. and the HSBC Asian local Bond Index. World Government Bond Index. Citigroup World Government Bond Index.SGS is a major component of the SGD bond market. These debt instruments take the form of either Treasury bills or bonds and are backed by the full faith and credit of the Singapore Government. •Although SGS cannot be cashed in before their maturity dates. SGS primary Dealers are prepared to buy and sell SGS at any time.TYPES OF BONDS SGS BONDS: • SGS are marketable debt instruments of the Government of Singapore. •Most SGS trading among primary Dealers takes place on the SGS Electronic Trading platform on Bloomberg. . The bond is also included within major bond indices including the Barclays capital Global Aggregate Index. investors can always sell them in the SGS market. •During normal market trading hours.

They are issued at a discount.TYPES OF BONDS – Cntd.e. • The SGS repurchase (repo) market is also relatively deep with a daily volume of about SGD2. Therefore. the interest earned on the Treasury bill is the difference between the purchase price of the security and its face (par) value . sold at a price less than their face (par) value. i.0 billion in 2011. MAS operates a repo facility that allows primary Dealers to borrow SGS from MAS on an overnight basis when the SGS are not readily available from other sources. To facilitate trading and market-making by primary Dealers. the Government will pay the holder of the Treasury bill the full face value of the security. • Types of SGS •Treasury Bills •Treasury bills are short-term marketable Government securities that mature in one year or less from their issue date. •At maturity.

expressed in percentage terms per annum. which is reflective of how interest rates have fluctuated over time. . •The coupon rate. indicates the interest payable per year for every SGD100 face value of bonds. and each has a unique issue code. •Surplus CPF funds are first placed as advance deposits with the Government through the MAS for subscription of future issues of these non-marketable SGS bonds. • SGS bond is denoted by its coupon rate and maturity date. The coupon interest is paid in two equal semi-annual payments on fixed dates that are six months apart.Bonds • SGS bonds are longer-term marketable debt securities of the Government. As such. there are a variety of coupon rates among bonds in the SGS market. They pay a fixed rate of interest (coupon) semi-annually for the life of the security and their face (par) value upon redemption at maturity. Non-Marketable SGS Bonds • Non-marketable SGS bonds are floating rate bonds issued specifically for the central provident Fund (CPF) Board to meet its interest and other obligations. They do not have quoted market values. The coupon rate of the bond reflects the market interest rate at the time the bond was first issued.

supranationals. and others. financial institutions. . convertible bonds. and united overseas Bank (uoB) – have issued preferred stock as Tier 1 capital. unsecured debt securities that are issued by corporations. government agencies and statutory boards. All three local banks – DBS Bank. perpetuals. While structures vary. and a principal repayment on maturity. with an annual or semi-annual coupon that can be fixed or floating. They can come in the form of preferred stock. debentures are typically issued at par.Types of Corporate Bonds: Corporate Debentures Corporate debentures are negotiable. Hybrid Securities Hybrid securities are instruments that have both debt and equity features. overseas chinese Banking corporation (ocBc).

is established with banks prior to any issuance. which took off in 2000. Both the ABS and CMBS are popular structures in the domestic securitisation market. which is often set up for frequent issuers. Today. while the commercial mortgaged-backed securities (CMBS) stemmed from the real Estate Investment Trusts (REITs) market. Singapore has the largest REITs market in Asia ex-Japan . An MTN programme. Securitised Debt Securities Asset-backed securities (ABS) entail pooling assets and issuing securities that are backed by the interests in the pool.Medium-Term notes Medium-term notes (MTns) programmes are quite common in the Singapore debt market. Its key purpose is to provide the standard ocumentation required in any bond issuance.

Property related corporations. and typically come under a specific government ministry. in particular. are a key issuer group in the SGD bond market space. Statutory boards These are quasi-governmental agencies which have been given autonomy and flexibility to perform an operational function. property related corporations. comprising mainly banks. other corporations. and financial institutions.Types of Issuers of SGD Denominated Corporate Debt Domestic entities Domestic issuers comprise statutory boards. as well as corporations and financial institutions. . Corporations and Financial Institutions Local corporate issuers can be broadly divided into 3 main groups. Their activities are overseen by a board of directors.

Middle Eastern and central American entities.Foreign entities: Singapore is one of the most international bond markets in Asia – with over a quarter of total annual issuance from foreign entities. . corporations. Europe. and other parts of Asia. Notable foreign entity issuers include the following. Australia. listed on the facing page. and financial institutions. Foreign entity issuers consist mainly of supranational agencies. the united States. Other foreign issuers hail from Africa. The increasing diversity of issuers is a significant recent trend as the market saw the first-time issuance from a number of russian.

the price of your bond may fall as it becomes less attractive to investors. Fitch. . -For example. -An upgrade in the issuer's credit rating with its bond yield remaining the same may lead to an increase in the price of its bond.The low-rated issuer may have to offer a higher yield in order to attract investors. Issuer's credit rating -A bond issuer with low ratings from rating agencies (S&P. Moody's. .FACTORS AFFECTING BOND PRICES • Although bond prices are determined by the forces of demand and supply. participants may look at several factors to assess the bonds: •Expectations of future interest rate levels and currency movements -Bond prices and interest rates are inversely related. etc) may carry a higher risk of default. if your bond yield is 5 percent but interest rates rose such that newly issued bonds pay a higher yield.

Lack of Liquidity . . . it is prudent for an investor to note some risks associated with bonds: -You may lose your principal should the issuer default.RISKS ASSOCIATED WITH BONDS • Even though Singapore has a very strong credit rating with minimal probability of default on its local currency debt obligations.Bonds redeemed prematurely may be sold lower than your purchase price.

POSSIBLE BENEFITS FROM BONDS • Obtain regular income through periodic payment of interest on the principal (except zero-coupon bonds and T-Bills). •Bond holders are debtors to the issuer and have priority over shareholders to assets in the event that an issuer faces bankruptcy. • Achieve portfolio diversification as bonds may not move in tandem with stocks. .

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