Market Summary Over the past week, 3M SOR decreased by -1.3bps, 3M SIBOR increased by 0.4bps and 3M LIBOR increased by 11.3bps.

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1 Victor Yong Heng Koon How Global Economics & Markets Research URL: Monday, 19 March 218 More Interested in What FOMC Says Rather than on what it does Rates Insights Market Summary Over the past week, 3M SOR decreased by -1.3, 3M SIBOR increased by.4 and 3M LIBOR increased by The 1M vs. 6M SOR curve steepened by 22.9 and the 3M SOR discount to SIBOR increased by Y SGS has outperformed vs. UST and underperformed vs. SG IRS. The 1Y SG IRS yield decreased by -5.8, which was less than 1 std dev based on historical yield changes over the past month. The 5Y vs. 3Y SG IRS curve closed today at.68 and has flattened by -4.3 over the past week Week Benchmark Yield Changes 2Y 5Y 1Y 3Y UST SGS IRS SG IRS Weekly Yield Change Relative To 1 and 2 Standard Deviation Bands Y 5Y 1Y 15Y 3Y 1Y SG IRS 2s1s SG and US IRS Curves Feb 26-Feb 5-Mar 12-Mar Mar SG (lhs) Mar13-Mar14-Mar15-Mar16-Mar19-Mar

2 2-Mar 5-Mar 6-Mar 7-Mar 8-Mar 9-Mar 12-Mar 13-Mar 14-Mar 15-Mar 2 P a g e Money Market Rates Historical Volatility Annualized () 3D 9D 18D Historical Volatility Annualized () 3D 9D 18D 1M SOR M SOR M SOR M SIBOR M SIBOR M SIBOR Auctions for 13 March saw a slight increase in total supply of 4W and 12W bills from SGD 7bio to SGD 7.3bio. Both tenors received a top up last week but the price impact was more pronounced for the 4W bill, which saw its bid-to-cover slip to its lowest level this year at 1.75 times. 4W cut off yield also increased significantly by 2 over the previous week to 1.65, this was also its highest cut off since December 217's transitory squeeze high of 2.5. The 12W bills were less volatile as its cut off yield eased by a mere 1 to 1.59, while recording a bid-to-cover of 1.75 times which was more or less in line with its average over the past year. Demand for bills has not been materially boosted by an appreciation in the SGD NEER, despite the latter clocking in a respectable jump from around +.5 at the start of the week to around +.9 by Thursday (15 March). Instead, it would appear that investors are choosing caution when it comes to dealing with the short end of the curve given the plethora of headwinds such as FOMC this week, 3M US Libor vs. OIS spread which has widened past its 216 highs and domestic SGS supply announcement for the 2 year regular and 4 year mini auctions. Domestic liquidity conditions have not been an aggravating factor last week as overnight SGD deposit rates were well behaved under 1. and the 1 month vs 6 month Sor curve steepened led by sharp declines in the 1M Sor. This week's FOMC will likely see a fully anticipated rate hike become reality. Of secondary interest, will be the updated dot plot and macro economic projections which are likely to show some degree of firming based on the tone of commentary given by FED speakers in the lead up to this week's meeting. Investors main focus will likely be on what Powell has to say in his first FOMC meeting as FED chair and there is certainly scope for surprise here not just because of leadership transition, but also because Powell's recent speeches have displayed a certain degree of candour that is distinct from his predecessors' more indirect styles. Short term view: * 3M SORs to fluctuate between 1.25 and 1.5. * 3M US Libor fully priced in 25 hike for March FOMC. Daily changes in 3M SOR Attributed FX Swap Libor SOR UOB SGD NEER Deviation From Mid Point 1M USDSGD risk reversal SGD NEER deviation (rhs)

3 3 P a g e Bonds and Interest Rate Swaps Asset Swap Spreads SGS Benchmark Tenor Current T - 1 T - 2 T - 3 T - 4 T - 5 SIGB 1 5/8 1/1/19 2Y SIGB 1 3/4 2/1/23 5Y SIGB 3 1/2 3/1/27 1Y SIGB 3 3/8 9/1/33 15Y SIGB 2 1/4 8/1/36 2Y SIGB 2 3/4 3/1/46 3Y Hopes that are pinned on FOMC to renew enthusiasm for higher yields will probably require a hawkish surprise from Powell during his first question and answer session as FED chair. In the absence of such a surprise, 1Y USTs have historically been better buy on price dips post FOMC. In 3 out of 4 previous FED hike meetings, 1Y UST yields have been lower 5 days after FOMC, the exception being December 217 which saw 1Y UST yield higher by 12 5 days post FOMC due to the prospect of tax reform legislation which passed on 2th December. Beyond historical behaviours around event risk, there are other reasons weighing on the prospect of 1Y UST tagging 3 in the short term. 1Y UST has been rather flat as its yield has been stuck in the 2.8s zone for the past 3 weeks, while performance in other developed bond markets have also not been providing a supportive backdrop as yields there have retraced lower to their January levels. Short positioning in the 1Y UST, based on net non-commercial combined CFTC data has pulled back to its least extreme level in a month but remains deep within the consensus bond bearish region, thus investors will require new information before adding to their existing shorts. Finally, the growth narrative has already been incorporated into investors' base case expectations but has recently been showing signs of its age. For example, the Citi US economic surprise index has been stuck sideways since February while the Atlanta FED's nowcasts for both GDP and PCE have fallen significantly from their year to date highs in January. Last week's flattening of the 2s1s UST curve back under 6 ahead of the FOMC meeting raises the spectre of an operationally constrained FED once again. This will tend to suppress risk appetite and may redirect some investors to take a second look at risk free offerings. Short term view (benchmark): * 1Y UST 1 week expected range 2.81/2.92. * 1Y SGS 1 week expected range 2.34/ Bond Yield Curves as at 19 Mar Y 5Y 1Y 3Y SGS UST -2 SGS Asset Swap Spread Curve ASW (-1week) ASW (current)

4 Jan-12 Jul-12 Sep-12 Jan-13 Sep-13 Mar-14 Aug-14 Jan-15 Apr-15 Sep-15 Mar-16 Jun-16 Aug-16 Jan-17 Sep-17 SGD mio 4 P a g e The Next SGS Auction 2Y Re-open Next Auction: July Auction: 22 (N5151S) Auction Tuesday, 27 March, 218 Size Announcement Auction Size: Tuesday, 2 March, 218 T.B.A Mini Auction: Auction April 222 (N5171F) Tuesday, 27 March, 218 Size Announcement Auction Size: Tuesday, 2 March, 218 T.B.A Key notes from 2Y SGS auctions between 212 to 217 * Average auction size excluding mini auction = SGD 2.4bio (Max SGD 3.bio, Min SGD 1.8bio) * Average Bid to Cover excluding mini auction = 1.96 times (Max 2.5 times, Min 1.48 times) * Average price concession across all previous auction was around 4, when measured from size announcement date In terms of pre-auction set ups, it has historically been better to wait until closer to size announcement date (1 week before auction) before contemplating tactical auction shorts. Demand characteristics for the 2 year tenor tends to be a little less price sensitive since the amount of duration risk is small compared to other auctions and also because a proportion of buyers in the front end of the curve comprises are driven by regulatory requirements. Factors to consider for this auction * Cash flows: March sees around SGD 73mio of coupons to be paid out and in April there will be SGD 6.7bio of bond maturity proceeds. * Volatility: Potential for episodes of volatility spike remains in the weeks leading up to 2Y SGS auction. This should underpin risk premiums and support yields. * Funding: MAS bills auction bid to cover has been volatile in 218, recording new 1Y high and low. Risk of funding shock could negatively impact on 2Y auction demand. 3,5 2,5 1,5 5 2 Year SGS Auction History (212 to Date) Auction Amount (S$M) Bid-to-Cover Ratio Pre Auction Average Yield Change (last 1 auctions) Trading Days Before Auction Total Yield Change From 2 Trading Days Before Auction 5-5

5 SGD Millions SGD Billions 5 P a g e Auction Dashboard Jul 22 closing yield (): 1.97 Jul 22 ASW spread ():.2 Jul 22 vs 2Y UST (): Y SGS v 3M MAS Bills (): 22.7 Weekly Change (): 1. Weekly Change (): -2.6 Weekly Change (): -1.2 Weekly Change (): 1.5 Directional Investors are naturally cautious ahead of Tuesday's size announcements. Last month's upside size surprise will inevitably be at the back of investors minds, even though demand composition in the 2Y tenor is very different from the 3Y. An upside size extreme of SGD 4bio (3bio of July 22 and 1bio of April 222) will likely cause the front end of the curve to underperform and potentially force a concession towards 2 in the July 22. A 2Y SGS that yields 2 will represent compelling value, not only when adjusted for FED and MAS expectations but also when you consider that 2Y fixed rate residential mortgages are currently being offered at promotional rates of under 2. Spreads and curve July 22 asset swap spread (ASW) hugged the parity line last week which was consistent with a Sibor and Sor spread curve that was relatively stable. We continue to prefer being on the side lines with regards to July 22's ASW since reaction to this week's supply announcement looks asymmetric. After the dust settles and for those with a longer holding period, inverted ASW or bond swap spreads are an anomaly assuming a constructive outlook for growth in general and bank lending in particular going forward. Notes on 218 SGS Cash Flows * March/September are chunky coupon months for SGS with SGD 737mio to be distributed. * May/November are dry months for SGS coupons. * Maturities for 218 total SGD 13.5bio (vs. SGD 1bio in 217) due in April (SGD 6.7bio) matured and September (SGD 6.8bio). Coupons for 218 Maturity for December November October September August July June May April March February January December November October September August July June May April March February January

6 6 P a g e Rates Biases Inception Date Currency Type Format Entry Stop Target Rationale at inception 2-Jan-18 2-Jan-18 SGD SGD IRS Boxspread SGS curve steepener 2s1s SG IRS flattener vs. US IRS steepener Long 1Y SGS vs. Short 2Y SGS * 2s1s SG IRS curve flattening has also lagged US curvature changes in 217. Boxspread at attractive level. * Convergence trade at the right place and right time for the current phase in the FED and MAS tightening cycle. * Full complement of 15Y, 2Y and 3Y duration scheduled, plus potential for more via mini auctions. * 1s2s downtrend since 212 broken and the curve looks to establish a new higher range.

7 7 P a g e Benchmark Levels Country Rates Current 1 week change 1 month change 1 year change 3M Libor () Y Bond () USD 1Y Bond () Y IRS () s1s Bond curve (bp) M SOR () Y IRS () SGD 1Y IRS () Y Bond () s1s IRS curve (bp) M Klibor () Y IRS () MYR 1Y IRS () Y Bond () s1s IRS curve (bp) M Bibor () Y IRS () THB 1Y IRS () Y Bond () s1s IRS curve (bp) M Jibor () IDR 2Y Bond () Y Bond () s1s Bond curve (bp) Disclaimer: This analysis is based on information available to the public. Although the information contained herein is believed to be reliable, UOB Group makes no representation as to the accuracy or completeness. Also, opinions and predictions contained herein reflect our opinion as of date of the analysis and are subject to change without notice. UOB Group may have positions in, and may effect transactions in, currencies and financial products mentioned herein. Prior to entering into any proposed transaction, without reliance upon UOB Group or its affiliates, the reader should determine, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences, of the transaction and that the reader is able to assume these risks. This document and its contents are proprietary information and products of UOB Group and may not be reproduced or otherwise. Singapore Company Reg No Z

Market Summary Over the past week, 3M SOR increased by 9.9bps, 3M SIBOR increased by 0.6bps and 3M LIBOR increased by 3.1bps.

Market Summary Over the past week, 3M SOR increased by 9.9bps, 3M SIBOR increased by 0.6bps and 3M LIBOR increased by 3.1bps. Victor Yong Victor.YongTC@UOBgroup.com Heng Koon How Heng.KoonHow@UOBgroup.com Global Economics & Markets Research Email: GlobalEcoMktResearch@uobgroup.com URL: www.uob.com.sg/research Monday, 12 February