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17-06-2013, 06:24 AM
Newton's law will not be defied... rates will turn up eventually. However, one must not forget that Singapore has surrendered monetary policy in favour of exchange rate policy. Hence, the rate movements will be a reflection of the monetary policies of its trade weighted partners, not just US alone. Whilst the recent sharp correction in 10 year SGS is sharp, IMO it remains inline with the ongoing correction for global equities. A more balance view can be read from the other thread posted by a AFR journalist - Relax Don't Worry About China and US
CAI JIN
Turmoil in bond market the real worry
Soured appetite may affect interest rates and hit investors with mortgages
Published on Jun 17, 2013
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If there is a hike in interest rates, home owners with mortgages to service will be affected. A good defensive move would be to call the bank and inquire about refinancing to try to lock in a better rate for as long as possible. -- ST PHOTO: JAMIE KOH
By Goh Eng Yeow Senior Correspondent
IN JUST three nerve-racking weeks, the benchmark Straits Times Index (STI) has lost all the gains it racked up this year, yet the real story may be the rout in the bond market.
While every fall in the stock market is greeted with howls of anguish, little has been said about the blood-letting among bonds, yet it has been severe.
Take the Singapore government 10-year bond. Since May 22, when the STI hit a six-year high of 3,454.37 points, the ultra-safe debt securities has dropped 4.3 per cent from $113.56 to $108.62 as of last Friday.
Worse, Singapore enjoys the dubious honour of being the world's worst-performing bond market after European Union state Slovenia over the past three months, according to Bloomberg.
Investor jitters over Slovenia are understandable. It has a bloated financial centre that has attracted huge bank deposits from non-residents, raising questions as to whether it can survive a Cyprus- style banking crisis.
But Singapore has one of the biggest foreign reserves in the world and its lenders are among the best-capitalised banks globally. It makes no sense for investors to suddenly lose their appetite over ultra-safe Singapore government bonds.
Rather, the blame has been pinned on investors' risk aversion as they switch out of every asset in sight in the light of remarks by United States Federal Reserve chairman Ben Bernanke that the massive money-printing programme may be reined in.
That programme - known as quantitative easing - has involved pouring US$85 billion (S$106.4 billion) of fresh money into the banking system every month.
Mr Bernanke's comments shifted expectations: Where investors had banked on "no change, possible further loosening", they now fear a possible tightening of monetary policy. It was a subtle change in tune but the effects were striking.
The soured bond appetite is not being helped by alarmist articles from some Western financial writers warning that when the bond bubble bursts, a lot of people are going to get hurt.
Now, you must be wondering why you should bother about all these developments if you are neither a stock nor bond investor. But many of us will be affected by a hike in interest rates if we have a mortgage.
No doubt, economists are sanguine about benchmark interest rates in Singapore staying near their current low levels for the rest of this year, but that is no consolation to the battle-weary traders who recall the great bond massacre 20 years ago.
Starting in early 1994, then Fed chairman Alan Greenspan doubled benchmark lending rates over 12 months. The ensuing chaos triggered a giant stampede out of the US bond market and a whopping US$600 billion loss for investors as they sold off government bonds.
It also caused a surge in the greenback which, in turn, precipitated the Asian financial crisis four years later, as it strained the ability of many companies to repay their US dollar debts.
The lesson from 1994 is that turning points in the interest-rate cycle can be messy.
Many of us are enjoying a mortgage rate of 1 per cent on our home loans. Imagine if it doubles to 2 per cent. On a $1 million loan, this would work out to $10,000 more in interest payments a year or $833 extra a month.
This may not be a problem for a working couple with one mortgage, even if they have to tighten their belts and cut down on frills in their spending. But for those with multiple mortgages, there is the nasty possibility of a credit crunch ahead.
Sure enough, stock investors are already assuming a worst-case scenario for the Singapore property market. Since May 22, developer CapitaLand has plunged 14.3 per cent while City Developments is down 9.7 per cent, both underperforming the STI, which has fallen 8.5 per cent.
So the first defensive move a home owner should adopt is to call his bank and inquire about refinancing to try to lock in a better rate for as long as possible.
These are uncertain times. Home owners should try to make hay on their mortgage rates, while the sun still shines. Weather forecast: Storm clouds ahead.
engyeow@sph.com.sg
CAI JIN
Turmoil in bond market the real worry
Soured appetite may affect interest rates and hit investors with mortgages
Published on Jun 17, 2013
0
0
0
newspostPurchase this article for republication
photobankBuy SPH photos
If there is a hike in interest rates, home owners with mortgages to service will be affected. A good defensive move would be to call the bank and inquire about refinancing to try to lock in a better rate for as long as possible. -- ST PHOTO: JAMIE KOH
By Goh Eng Yeow Senior Correspondent
IN JUST three nerve-racking weeks, the benchmark Straits Times Index (STI) has lost all the gains it racked up this year, yet the real story may be the rout in the bond market.
While every fall in the stock market is greeted with howls of anguish, little has been said about the blood-letting among bonds, yet it has been severe.
Take the Singapore government 10-year bond. Since May 22, when the STI hit a six-year high of 3,454.37 points, the ultra-safe debt securities has dropped 4.3 per cent from $113.56 to $108.62 as of last Friday.
Worse, Singapore enjoys the dubious honour of being the world's worst-performing bond market after European Union state Slovenia over the past three months, according to Bloomberg.
Investor jitters over Slovenia are understandable. It has a bloated financial centre that has attracted huge bank deposits from non-residents, raising questions as to whether it can survive a Cyprus- style banking crisis.
But Singapore has one of the biggest foreign reserves in the world and its lenders are among the best-capitalised banks globally. It makes no sense for investors to suddenly lose their appetite over ultra-safe Singapore government bonds.
Rather, the blame has been pinned on investors' risk aversion as they switch out of every asset in sight in the light of remarks by United States Federal Reserve chairman Ben Bernanke that the massive money-printing programme may be reined in.
That programme - known as quantitative easing - has involved pouring US$85 billion (S$106.4 billion) of fresh money into the banking system every month.
Mr Bernanke's comments shifted expectations: Where investors had banked on "no change, possible further loosening", they now fear a possible tightening of monetary policy. It was a subtle change in tune but the effects were striking.
The soured bond appetite is not being helped by alarmist articles from some Western financial writers warning that when the bond bubble bursts, a lot of people are going to get hurt.
Now, you must be wondering why you should bother about all these developments if you are neither a stock nor bond investor. But many of us will be affected by a hike in interest rates if we have a mortgage.
No doubt, economists are sanguine about benchmark interest rates in Singapore staying near their current low levels for the rest of this year, but that is no consolation to the battle-weary traders who recall the great bond massacre 20 years ago.
Starting in early 1994, then Fed chairman Alan Greenspan doubled benchmark lending rates over 12 months. The ensuing chaos triggered a giant stampede out of the US bond market and a whopping US$600 billion loss for investors as they sold off government bonds.
It also caused a surge in the greenback which, in turn, precipitated the Asian financial crisis four years later, as it strained the ability of many companies to repay their US dollar debts.
The lesson from 1994 is that turning points in the interest-rate cycle can be messy.
Many of us are enjoying a mortgage rate of 1 per cent on our home loans. Imagine if it doubles to 2 per cent. On a $1 million loan, this would work out to $10,000 more in interest payments a year or $833 extra a month.
This may not be a problem for a working couple with one mortgage, even if they have to tighten their belts and cut down on frills in their spending. But for those with multiple mortgages, there is the nasty possibility of a credit crunch ahead.
Sure enough, stock investors are already assuming a worst-case scenario for the Singapore property market. Since May 22, developer CapitaLand has plunged 14.3 per cent while City Developments is down 9.7 per cent, both underperforming the STI, which has fallen 8.5 per cent.
So the first defensive move a home owner should adopt is to call his bank and inquire about refinancing to try to lock in a better rate for as long as possible.
These are uncertain times. Home owners should try to make hay on their mortgage rates, while the sun still shines. Weather forecast: Storm clouds ahead.
engyeow@sph.com.sg