GLOBAL FIXED INCOME STRATEGY

Transcription

1 GLOBAL FIXED INCOME STRATEGY

2 QUARTERLY INVESTMENT STRATEGY Fourth Quarter Underweight position in Fixed Income Fixed Income Asset Allocation N + Fixed Income Developed DM Govt DM Credit emerging EM Govt EM Corp EM Local Currency Duration^ Yield Curve* Asia Latin America CIS/EE Middle East/Africa Notes: ^ + denotes long duration and - denotes short duration * + denotes Steepener and - denotes Flattener In the developed markets, we remain underweight in government bonds. We also maintain the slight underweight in investment grade corporate credits due to the potential steepening of the US treasury yield curve while keeping the portfolio duration short relative to the benchmark. Generally, we prefer high yield credits as we expect credit spreads to stay stable or tighten slightly. In the emerging markets (EM), we reduce the overall overweight to neutral and remain positive on corporate credits relative to sovereign credits. We are neutral across EM regions as we would prefer to focus on the analysis of specific countries. We continue to favour the US dollar over local currency EM credits over the next three to six months.

3 32 QUARTERLY INVESTMENT STRATEGY DEVELOPED MARKET FIXED INCOME G7-1.6% 0.6% World -0.6% 0.9% Italy France 0.4% Germany -1.1% United States -1.8% 0.8% UK -2.9% 0.4% -2.9% Singapore -2.9% Canada -1.7% -5.1% Japan 2.8% -10.9% Source: The Yield Book, as of 30 November 2013 Singapore dollar adjusted and Local Currency YTD returns 7.3% 13.7% 6.4% 4.8% Local currency returns Singapore dollar adjusted returns -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% The G7 fixed income index returned -1.6 per cent year to date in Singapore dollar (SGD) terms, although the performance at the individual country level has been quite mixed. The Eurozone countries performed well in SGD terms thanks to the appreciation of the Euro. Among the Eurozone fixed income markets, Italy was the best performer in both local and SGD terms as the Italian bonds were well supported by the markets (especially by the domestic banks) after the European Central Bank (ECB) s Outright Monetary Transaction (OMT) announcement in Most other safehaven countries had a negative performance due to the bear steepening of the yield curves as the US Federal Reserve (Fed) was widely expected to wind down its quantitative easing (QE) programme. Hurt by the weakening yen, Japan took last spot with the worst performance in SGD terms in As mentioned previously, 2013 is the year of transition during which the global economy will shift towards a sustainable recovery. In the United States, there has been a strong recovery in the labour market, the housing industry has shown signs of normalisation, households have reduced debt burden, financial intermediaries have de-levered and consumer spending has started to pick up. The impact of fiscal consolidation at the federal level, with the tax increases and sequester, was less severe than expected. However, corporates remain cautious in their capital spending. In June, the Fed stepped back from its hawkish tone and did not begin tapering its QE programme in September. The Fed communicated that it would wait for more evidence of a recovery before it begins tapering the stimulus measures. As a result, the 10-year yield fell from a peak of 2.99 per cent before the September Fed meeting to 2.50 per cent post-meeting. After seeing more promising signs of recovery in the labour market, the Fed announced to taper the QE programme by 10 billion to 75 billion a month in its December Federal Open Market Committee (FOMC) meeting. As we expected, the announcement was accompanied by more dovish forward guidance, stating that the first rate hike

4 QUARTERLY INVESTMENT STRATEGY 33 would take well past the time that the unemployment falls below its threshold of 6.5 per cent. We believe that the pace of reduction of the QE programme would depend on the incoming economic data and would be accompanied by strong forward guidance and the emphasis that tapering is not implying tightening. The Fed may also decide to lower the unemployment threshold to 6 per cent, include an inflation floor or introduce a press conference after every FOMC meeting for better forward guidance. We expect the entire tapering exercise to complete within six to nine months and be evenly distributed between Treasury bonds and mortgage-backed securities, with all the securities held till maturity. In this case, we expect the 10-year US Treasury (UST) yield to be range-bound between 2.90 and 3.25 per cent in the coming quarter as monetary policy changes and the economy recovers. Hence, we foresee the two to 10-year spread widening but the 10 to 30-year spreads flattening due to sticky 30-year rates. The recent employment data has been stronger than expected and the rates would likely maintain their steepening bias. In addition, at current yield levels, the term premium for 10-year treasury bonds is just around 1 per cent and as growth picks up, investors are likely to demand compensation which will push up the term premium. In terms of currency, we are constructive on the US dollar (USD) as we believe that the US economic recovery along with the Fed s tightening in the coming years will be positive for the USD. UST 10-Year Term Premium and Fed Fund Target Rate % Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Term Premium Fed Funds Target Rate Source: Morgan Stanley Research, The Global Interest Rate Outlook, November /30/ /31/2012 1/31/2013 2/28/2013 Source: Bloomberg, 30 August 2013 US Treasury 10-yr 3/31/2013 4/30/2013 5/31/2013 6/30/2013 7/31/2013 8/31/2013 9/30/ /30/ /30/2013 Across the Atlantic, the ECB unexpectedly cut rates in its November meeting due to a rising disinflationary trend in the peripheral nations. We expect the ECB to use more tried and tested tools such as the Euro OverNight Index Average (EONIA) rate cut and long-term refinancing operation (LTRO) along with strong forward guidance to tackle deflationary fears before it enters the unchartered territory of negative interest rates. Most of the tail end risks from Europe have subsided even though the structural issues in Eurozone still remain. The low yields for the peripherals helped to moderate the risks of a currency breakdown and ensured that Spain and Italy maintain regular access to liquid capital markets. In 2013, both Italy and Spain had large funding requirements, but both were well supported by their respective domestic banks, which significantly increased their government bond holdings. In 2014, both countries could come under pressure as the ECB is expected to conduct an Asset Quality Review early in the year and another round of bank stress tests. This means that the banks might be less inclined to buy a sizeable amount of their domestic government bonds and the funding gap would have to be met by international investors. Among the core Eurozone countries, Germany is a clear leader with stable growth and encouraging leading indicators. We remain modestly positive on Germany s growth but we remain mindful that the stagnation of global trade, growing real wages and its effect on profitability, capital spending and

5 34 QUARTERLY INVESTMENT STRATEGY new emerging competition from the US (low energy price) and Spain (low labour cost) could pose a potential risk to Germany s growth. As for France, its economy is still lagging behind but the technicals remain supportive due to investors chase for yield. The signs of recovery from the previous quarter mostly faded away with weak Gross Domestic Product (GDP) and Purchasing Managers Index (PMI) data. S&P also downgraded France a second time to a rating of AA, highlighting concerns of inadequate reforms and the country s inability to consolidate public finances due to low economic growth. For Italy, though we expect the government to stay for now, its political instability is still clouding its economic recovery. Hence, we maintain our underweight for Italian bonds. For currency, we are short on the euro, given the ECB s loose monetary policy bias compared with the other major central banks German Bunds 10yr Germany Bunds 10yr UST-German 10yr Spread /1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/ /30/ /31/2012 1/31/2013 2/28/2013 3/31/2013 4/30/2013 5/31/2013 Source: Bloomberg, 30 November /30/1203 7/31/2013 8/31/2013 9/30/ /31/ /30/2013 (50.00) (100.00) Source: Bloomberg, as of 30 November French Bonds 10yr French Bonds 10yr We expect the 10-year German Bunds to steepen slowly from current levels, reaching the 1.75 to 2 per cent range by the end of the first quarter of The spread between UST and German Bunds has been widening and is currently above 100 basis points (bps), making it a multi-year high. We expect the spread to hover around these levels or even continue to widen as the US Fed and ECB diverge in their policy stances. We are overweight in Bunds and neutral on duration /11/12 31/12/12 31/1/13 28/2/13 31/3/13 30/4/13 Source: Bloomberg, 30 November /5/13 30/6/13 31/7/13 31/8/13 30/9/13 31/10/13 For France, we continue our underweight call given the continued drag in its economy. Even though Spain still has a long way to go towards implementing the approved reforms, it has seen rather positive market reactions towards its efforts. Hence we are neutral on Spanish bonds and duration.

6 QUARTERLY INVESTMENT STRATEGY Italian Bonds 10yr Spanish Bonds 10yr The Japanese economy showed some signs of improvement thanks to Abenomics. The inflation rate has been hovering above zero since the middle of the year and improvement can be seen in business sentiments, industrial production and labour market conditions. While the GDP growth for the third quarter has slowed, the growth momentum could pick up if consumption improves ahead of the consumption tax hike which will kick in in April /30/2012 Source: Bloomberg, 30 November 2013 After starting the year with a weak recovery, the UK economy picked up some pace in the later part of 2013 with strong contributions from both the services and manufacturing sectors. However, macro headwinds such as stagnant wage growth, subdued inflation and unemployment remain and we expect growth to continue to pick up as the recovery to-date has been quite broad-based. For Gilts, we are changing our call to underweight as we do not expect the Bank of England to restart QE in the near future, given that growth is surprising on the positive side. We foresee the 10-year range between 3 to 3.25 per cent by the end of the first quarter, closely following the US treasury. We are neutral on the British pound. UK Gilts 10 yr 3.20 UK Gilt 10yr /30/ /31/ /31/2012 1/31/2013 2/28/2013 1/31/2013 2/28/2013 3/31/2013 4/30/2013 5/31/2013 3/31/2013 4/30/2013 Source: Bloomberg, 30 November /31/2013 6/30/2013 6/30/2013 7/31/2013 8/31/2013 9/30/ /31/2013 7/31/2013 8/31/2013 9/30/ /31/ /30/2013 The Japanese yen has weakened about 18 per cent in 2013 and the weakening trend is likely to continue. Japan s current account balance is weak as the stable services and income account are more than offset by the deteriorated trade balance. For net exports to pick up meaningfully, a weak yen needs to be accompanied by growth momentum in the importing countries. With regards to its monetary policy, the Bank of Japan (BoJ) targets to achieve 2 per cent consumer price index (CPI) inflation by 2015 and is expected to maintain its easy stance. The Japanese government bond yield has fallen versus its developed counterparts and this further contributed to yen weakness. In addition, the reversal of safe haven flows due to improving risk sentiment is negative for the Japanese yen. We would recommend an underweight in the yen. The Japanese government bond yield has been kept low with the significant home bias of Japanese investors, which has helped to maintain the interest burden at a moderate level despite a high stock of government debt. However, if the BoJ succeeds in reaching its inflation target, it will be hard to see how the low government bond yield can be maintained at the current level. The high government debt level and the likely path of Japanese bond yield would justify the underweight in Japanese government bonds. In Australia, the Australian dollar (AUD) has appreciated significantly over the last decade as higher commodity prices led to increased capital inflows to fund the substantial increase in mining investment. As commodity prices fell from their peak and mining investments decline from the record levels reached in 2012, the exchange rate depreciated. Reduced monetary stimulus in the United States compared with relatively easier monetary policy in Australia was another contributing factor to the weaker currency.

7 36 QUARTERLY INVESTMENT STRATEGY While the liquefied natural gas (LNG) industry has not passed the peak of its investment stage, investment in iron ore has peaked and the industry is transiting from investment to production stage. The large volume of mining investments added significantly to capacity and supported growth in resource exports. This transition translated to lower demand for labour working in the iron ore industry. Overall, the labour market condition, which remained soft, is expected to see higher unemployment. Structural and cyclical influences are contributing to a higher unemployment rate. GDP growth is expected to be below trend this year with lower investments. One bright spot could be the construction sector. Improved conditions and higher prices in the housing market provide the impetus for dwelling investment which looks to be on an upward trend. Residential building approval and other forward looking indicators of activity such as loan approval and first home owner grants for new dwellings have increased noticeably over the past year. The lower demand for labour in the resource sector as it transits to production stage may provide the workers needed in the construction sector. Historically, the Reserve Bank of Australia (RBA) does not increase rates when the labour market is soft and unemployment rate is expected to trend higher. Therefore, the central bank is likely to hold policy rates at an accommodative level. The housing market has benefited from low interest rates and that is probably another reason why the RBA would not want to dampen this source of growth for the economy at a time when the resource sector is slowing. The longer end of the Australian government bond (ACGB) curve however tends to track the direction of US treasury (UST) yield and poses upside risk. With the front end of the ACGB curve pricing in a low RBA rate and the long end at risk of tracking UST yield higher, we recommend to underweight AUD while holding a neutral stance on ACGB.

8 QUARTERLY INVESTMENT STRATEGY 37 EMERGING MARKET FIXED INCOME The past quarter has seen bond yields stabilise due to lower volatility in the UST yields. This allowed emerging market (EM) yields to outperform as spreads tightened. During the period, the Fed stunned the markets by deciding at its September meeting not to commence tapering and that brought about a sharp relief rally in the UST market. That was a dramatic reversal from the chairman s stance in May 2013 that the tapering would likely start later in the year. In our view, the Fed s decision may have been motivated by the potential fiscal showdown in the US and the sharp volatility in rates following the May s announcement. However, the US Fed surprised the market again by announcing a USD 10 bn tapering on 18 December Despite the tapering, the US Fed put out dovish statements to assure the market that the interest rate will stay low until unemployment rate drops well below 6.5% per cent. For EM bonds, this provided a relief and led the Emerging Market Bond Index Global Diversified (EMBI-GD) yields lower from a high of around 6.25 per cent to a low 5.5 per cent before ending end November at around 5.85 per cent. Fears of another EM crisis similar to the Asian Financial Crisis - also proved unfounded as EM central banks stepped in to shore up liquidity. This was quite apparent in Indonesia, India and Brazil, which have taken steps to raise interest rates and provide liquidity to local banks. Outlook In recent periods, growth in the US has continued to grind higher with the unemployment rate falling. Meanwhile, growth in most EM economies has clearly slowed down. On balance, we saw a growth DM-EM growth dynamics, even as inflation has stayed benign. For example, energy and food prices have been relatively stable in 2013, removing pressure for EM central banks to increase interest rates. Over the course of the next one year, we expect to see a convergence between growth in EM and developed markets (DM), although growth rates in EM economies will still be higher than those of DM economies. Real GDP, q-o-q annualised (%) Source: IMF World Economic Outlook, October 2013 A key event for the coming quarter will be the amount of additional tapering the US Fed will announce. We are of the view that the Fed will continue to taper in the first quarter of 2014 and guidance for future interest rates will signal continued easier monetary policy for the foreseeable future. We think that this should be positive for EM bond spreads and should provide some buffer for rising bond yields. However, there are also structural challenges that some EM countries face too. Countries such as Indonesia and Brazil have been growing strongly, with inflationary pressures creeping in as the economies have enjoyed a period of booming growth, with low unemployment and easy credit. This has led to widening current account deficits as import demand outstrips exports. The good news is that the situation has been brought to light and domestic central banks have tightened monetary policy, while EM currencies have also weakened against the USD at the same time, thus causing imports to be more expensive and exports relatively cheaper. We believe that this adjustment is healthy, although there is still space for further adjustment in 2014 mainly through a weaker currency rather than aggressive monetary tightening.

9 38 QUARTERLY INVESTMENT STRATEGY In the immediate horizon, we do not see an acceleration in EM growth in a situation where commodity prices are muted and monetary tightening is taking place across most EM economies. However, we are not overly alarmed by this, but rather view it as part of the business cycle, where periods of strong growth increase inflationary pressures which then lead to slower growth. The long term outlook for EM remains positive, supported by factors such as positive demographics, a growing middle class and improving business environment. Strategy In terms of portfolio strategy, we remain cautious on higher duration credits due to the expected rising interest rate environment. Therefore, we prefer to trade duration from the short side. However, we think that EM spreads are wide, having sold off in reaction to outflows from this asset class. Anecdotally, we believe much of the outflows are driven by retail investors, while institutional investors are still net investors into this asset class. Overall, the big picture strategy is to be cautious on long duration credit and we favour EM high yield credits over investment grade names in order to capture the possible moderation in credit spreads. At the same time, we strongly believe that sector, company and country selection will be the ingredients to better performance in 2014.

10 QUARTERLY INVESTMENT STRATEGY 39 ASIA FIXED INCOME Outlook and Strategy Over the past quarter, the Asian credit market recovered following a meltdown in the second quarter of 2013 (Q2 2013). In the 30 September to 4 December period, the market returned 1.58 per cent, up from 1.29 per cent registered in the third quarter of 2013 (Q3 2013) and a fall of 4.34 per cent in the second quarter (Q2 2013). Credit spreads have tightened 17 bps for the quarter to date, after a 7 bps tightening in Q and widening of 22 bps in Q On a year-to-date basis, the Asian credit market is down 1.36 per cent while credit spread is 19 bps wider. JACI Total Return Index Asia credit market rose 1.58% in Q4 from +1.29% in Q3; YTD Asia credit is still down 1.36% bps Dec-10 4-Jun-11 4-Dec-11 4-Jun-12 4-Dec-12 4-Jun-13 4-Dec-13 Source: Bloomberg, 05 December 2013 JACI Total Return Index (28 Feb 2010=100) We are of the view that with credit spreads above 300 bps, this is a good entry level given that credit spreads rarely stay above this level for too long. Asian credit spreads JACI Index bps JACI Spread Dec-06 5-Dec-07 5-Dec-08 5-Dec-09 5-Dec-10 5-Dec-11 5-Dec-12 5-Dec-13 JACI spread Source: Bloomberg, 5 December 2013 Despite the strong Asia credit performance, the performance of Asian currencies (FX) was lacklustre in comparison. Asian FX (as proxied by the JP Morgan Asia Dollar Index) rose a modest 0.3 per cent during the end September to 4 December period after being flat in Q and falling 1.5 per cent in Q On a year-to-date basis, Asian currencies are still down 1.8 per cent. The Southeast Asian currencies continued to underperform the North Asian currencies as the trade balances in most of the Southeast Asian countries continued to deteriorate. Meanwhile, North Asian countries such as Taiwan, China and Korea continued to enjoy improvement in their trade balances. The table below indicates that 5 out of 10 Asian countries experienced worsening trade balances over the past six to 12 months. Indonesia, Thailand, Malaysia and India appeared to have suffered the fastest pace of trade balance deterioration over the past 12 months.

11 40 QUARTERLY INVESTMENT STRATEGY Trade Balance, 12m rolling sum (USD mn) China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Asia Jun ,829-57, ,162 11,538 26,331 37,234 10,199 36,523 28,154-18,085 69,884 Sep ,549-59, ,913 4,899 27,509 32,668 10,942 33,184 28,818-19,906 77,666 Dec ,765-61, ,995-1,659 28,285 31,209 11,362 28,670 30,708-20,752 85,224 June ,034-64, ,914-5,513 37,421 22,264 11,930 32,480 33,824-25, ,596 Current (September 2013) current vs Sep 2012, % change 254,101-64, ,890-8,947 40,805 22,442 12,197 33,035 35,476-24, , current vs Dec 2012, % change Source: CEIC We believe that the Indonesian rupiah (IDR), Thai baht (THB) and Malaysian ringgit (MYR) will face the biggest downside risk over the next three to six months due to their worsening trade balances and relatively expensive currencies. Chart 3 indicates that the Philippine peso (PHP), Chinese yuan (CNY), THB, SGD, IDR and MYR have gained the most on a real effective exchange rate (REER) basis over the past 10 years. chart PHP, CNY, THB, SGD and IDR have gained the most over the past 10 years & change on REER vs 5 years ago % change in REER vs 10 years ago PHP CNY THB SGD IDR AUD MYR NZD KRW TWD HKD JPY INR Real GDP growth in Asia is now slowing down faster than in Europe and the US (see Chart 4). This also reduces the attractiveness of holding Asian securities. chart 4 Asia now slowing faster compared to Europe and US GDP growth, % change Asia US Europe World Q Q Q32005 Q Q Q Q Source: Bloomberg, November 2013 Source: Bloomberg, November 2013

12 QUARTERLY INVESTMENT STRATEGY 41 Another key market risk for Asia is the possibility of a further spike in UST yield. The 10-year UST yield has risen 127 bps from the year-low of 1.63 per cent on 2 May 2013 to 2.83 per cent on 4 December. Our internal model suggests that the fair value for the 10- year UST is around 2.5 per cent. However, the model also indicates that if QE is removed, the fair value for the 10-year UST yield will rise to 4.10 per cent. The US Fed announced on 18 December that they are tapering the QE programme by USD 10bn monthly. We believe that the gradually improving US economy will compel them to end the QE programme by end of Hence, we maintain our view that the trend for interest rates is clearly on the upside. The Asian credit market remains highly sensitive to sharp rises in UST yields. As a result, we will overweight credits that have duration of less than five years. Within the high grade segment, we will overweight BBB-rated credits and underweight credits that are A-rated and above. our underweight position in Indonesia by underweighting the corporate sector. Performance of Asian High Grade (HG) v Asian High Yield (HY) Asia HG is up 1.23% in Q4 while HY is up 2.66% in Q3 2013; On YTD basis, HG is down 2.43% while HY is up 1.58% Investment grade total return Source: Bloomberg, 4 December 2013 Non-investment total return Dec-10 4-Dec-11 4-Dec-12 4-Dec-13 We think that the Chinese BB-rated property sector and the Hong Kong high grade property developer credits are trading at attractive valuations. Despite the draconian antispeculation measures in China, property developers continue to report healthy property sales figures. We also think that some of the high grade offshore renminbi (CNH) credits offer good value as well as good downside protection against higher interest rates. Within the investment grade sector, we prefer the BBB credits space given that their higher yields provide better protection against rising interest rates compared to the A-rated credits. Within the sovereign and quasi sovereign credits, we see value in Mongolian sovereign bonds (which are giving an attractive yield of 7.4 per cent for its 10-year paper) and Indonesian quasi-sovereign bonds, which are now trading at more than 100 bps above the sovereign credit. We also think that the Indonesia 10-year sovereign credit, which is trading at a yield of 5.5 per cent, offers a good risk-reward trade-off. In terms of country allocation, we are underweighting India and Indonesia corporates due to concerns of deteriorating macro fundamentals. However, we do see some value in Indonesia sovereigns and quasi sovereigns and will express

13 42 QUARTERLY INVESTMENT STRATEGY Fourth Quarter 2013 SINGAPORE FIXED INCOME Macro Review The Singapore economy contracted 1 per cent quarter-onquarter (q-o-q) seasonally adjusted in Q3 2013, lower than the 16.9 per cent revised growth registered in Q In year-on-year (y-o-y) terms, real GDP expanded 5.1 per cent in Q3 2013, higher than the revised 4.2% in Q The slowing growth momentum was mainly due to the contraction in the manufacturing sector (-3.4 per cent q-o-q seasonally adjusted in Q from 33.5 per cent q-o-q seasonally adjusted in Q2 3013) and the construction sector (-8.8 per cent q-o-q seasonally adjusted in Q from 20.9 per cent q-o-q seasonally adjusted in Q2 3013), contributed by weakness in the electronics and pharmaceutical industries as well as a decline in public sector construction activities. Headline inflation accelerated to 2.0 per cent y-o-y in October from 1.6 per cent y-o-y in September. On a year-to-date basis, CPI inflation was up 2.4 per cent y-o-y compared to a rise of 4.6 per cent in Core inflation, which excludes private road transport and accommodation, accelerated to 1.8 per cent y-o-y from 1.7 per cent y-o-y in September. We think that the government remains highly concerned over the high inflation data. In October 2013, the MAS maintained the modest and gradual appreciation path of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, with no change to its slope, width, and the level at which it was centred. This policy stance, which has been in place since April 2012, has helped to alleviate inflationary pressures and anchor inflation expectations, as well as facilitate the restructuring of the economy. While the MAS maintained its tight monetary policy in 2013, we believe that with the US Fed likely to taper its QE programme over the next six months, Asian currencies could come under selling pressure. We expect the SGD to weaken further. of QE tapering fears. On a year-to-date basis, the index has fallen 0.74 per cent. The secondary market was supported by a limited supply of investment grade issues. Shorter dated papers and corporate perpetuals were well supported as investors picked up the bonds on dips. Indian credits were in demand as investors chased yields despite negative headlines such as S&P s downgrade of IDBI Bank in late November to BB+/B with a negative outlook. Primary issuances picked up as interest rates stabilised post QE tapering fears. Established names such as Sembcorp Industries Ltd, United Overseas Bank as well as DBS capitalised on the low interest rate environment to issue long-dated bonds. Chinese property developer China Vanke Company Ltd issued S$140 million of its maiden 4-year bond. Apart from these investment grade issuances, primary issuances were saturated by mid-sized Singapore companies of S$100 million or less. These issuances were mainly supported by private banking clients while institutional investors stayed on the sideline. Given the higher number of high yield issuances by midcapitalisation companies in 2013 compared with the previous year, we expect similar issuers to tap the SGD bond market in However, we do not foresee significant tightening of credit spreads as investors have become highly selective in the current volatile environment. Credit Review In October and November of 2013, the HSBC SGD Non- Government Local Currency Bond Index rose 0.57 per cent after a massive 3.78 per cent sell-off in Q on the back