Heatmap of Daily Changes

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1 Victor Yong Global Economics & Markets Research URL: Rates Insights March FED Hike Not Inciting Much Uplift In SG Rates. Monday, Heatmap of s - Singapore Malaysia Thailand Indonesia China HKD Hong Kong CNH Equity (%) -0.1% 1.0% -0.5% 0.1% 0.5% 0.2% USD_Asia FX (%) -0.1% -0.1% 0.0% -0.3% -0.1% 0.0% -0.1% Money Markets () Short End IRS () Long End IRS () *Table is read horizontally. Price increase in Green. Price decrease in Red. Color intensity corresponds to rank. Market Summary SORs are implied to fix lower by around -1.8, -3 and -2.4 in the 1M, 3M and 6M tenors respectively tonight based on the closing swap levels. UST yield lost -1.4 during SG trading hours and this ran counter to it's overnight US session which saw yields moving higher. Turning to domestic markets, the performance today was consistent across both markets with yields shifting lower; IRS -4.5 and SG curvature performance today saw the 2s10s flatter by -0.2 in IRS and flatter by -0.9 in. Regional yields today were unchanged in Thailand, China, fell in Malaysia, Indonesia, Hong Kong, and in terms of magnitude of change the day's biggest yield drop was -1.5 which was seen in HKD IRS. Major Indices - SG Hours UST Bunds USD Index (DXY) USD Index (ADXY) Brent Oil Asia ex Japan Equities Open Close Change % 0.03% -0.54% 0.23%

2 2 P a g e Today s Highlights SG IRS daily change vs. 1M SD +1SD -1SD Today Y 5Y 15Y 20Y 30Y SG rates daily changes % IRS past month 2.70 IRS -1SD Ave +1SD Feb 8-Feb 10-Feb 12-Feb 14-Feb 16-Feb 18-Feb 20-Feb 22-Feb 24-Feb 26-Feb 28-Feb 2-Mar 4-Mar 6-Mar SG vs US (IRS semis) cross market spreads 0.0 IRS 20 6-Mar-17 3-Mar Y 5Y 15Y 20Y 30Y -30 1Y 2Y 3Y 5Y 7Y 15Y 20Y 30Y SORs In the midst of what has been an abrupt shift in market pricing for March FED hike probabilities, it has been steady as she goes for SORs. Over the past week which saw implied hike probabilities jump from 30% to 96% currently, 3M US Libor has resumed its grind higher gaining 5 in one week compared to less than 3 gain over the entire month of February. 3M SOR also saw gains of close to 7 during this repricing phase, but the "surprise" here has been the absence of overshooting. Relatively well behaved SORs owes a debt to the resilience in NEER which is relatively unchanged compared to the start of FED hike repricing. Looking ahead, there's room for more upside to SORs as US Libors continue to grind higher and via mean reversion pressures on the NEER as we get closer towards April's MAS. We are now looking at 3M SOR to range between 0.90% and 1.10% (0.70%/0.90% previously) until the 2nd FED hike this year expected in June. Short term view: Our FED hike expectations have been front loaded onto March, while retaining 3 hikes in 2017, as of 06 March. Therefore, we shift our range for 3M SOR between March and June FOMC from 0.70%/0.90% higher to 0.90%/1.10%. and IRS SG rates markets have outperformed their US counterparts over this March repricing phase. and SG IRS yields are lower by around 4 since 24 Feb compared to UST and US IRS yields which are higher by around 16. Divergence between SG and US yields is already at short term range extremes with UST threatening 2.50% upside and SG IRS doing the opposite with support level of 2.55%. The potential of further sharp gains in UST yield from a successful breakthrough has not been lost on other developed rates markets, thus all eyes will be on whether the UST yield resistance holds. In a breakthrough scenario it will be unusual to see continuing to defy a concerted surge in yields. Short term view: SG IRS consolidation range between 2.55%/2.75%. Upside impulse has waned, but a downside break may require the assistance of a collapse in USD and/or Equities to elevate risk aversion.

3 3 P a g e auction and its surroundings Next Auction: New 5Y 01 April 2022 (N517100F) Announcement date: Wednesday, 22 March, 2017 Size: T.B.A. Auction date: Wednesday, 29 March, 2017 The 5Y new issue continues to cheapen against its neighbouring issues (current 5Y benchmark and Sep 2022). However, the 5Y tenor remains expensive on a big picture basis; 2s5s10s fly is still richer by 12 from one month ago and the 5Y yield discount to UST has stuck close to its lowest levels since September Further cheapening of the 5Y new vs. current benchmark may begin to offer value above 22, but capturing this value will not be straight forward as it requires a counterparty that is willing to enter into a "when issued" or WI transaction. Previous 5Y Auctions Observations * Average size of past 8 auctions = 2.4bio ( New Issues only = 2.7bio, Re-tap Issues only = 2.0bio). * Weighted average bid to cover overall = 1.80 times (New Issues only = 1.76 times, Re-tap issues only = 1.89 times). Given that there will be 7.5bio of maturing proceeds, we expect the 5Y auction size to be biased higher based on last year's precedence. In 2016 there were 2 maturities of 7.3bio and 7.7bio in April and September respectively, these coincided with 2Y re-tap auctions. Auction size for the maturing proceeds issuances were 2.6bio and 2.2bio respectively compared to July 2016's non maturing proceeds 2Y re-tap auction sized at 1.8bio. This works out to be a 22% and 44% upsized effect due to bond maturities. In addition, bid to cover was strong for the maturing proceeds auctions at 2.25 times and 2.29 times as can be expected. In contrast the non-maturity 2Y re-tap (that was downsized) only garnered a 1.95 times bid to cover. In summary, our expectation for April 2022 new issue is for the size to come out around 3bio. April 2022 interpolated yield (%): Y (old) spread Y UST spread Y SG IRS spread Y Bmk ASW spread: Daily Change Key notes on 2017 cash flows * March/September are chunky coupon months for with 646.1mio to be distributed. * February/May/August/November are dry months for coupons. * No new coupons will be added to dry months in * Maturities for 2017 total 10bio due in April ( 7.5bio) and October ( 2.5bio).

4 4 P a g e Rates Strategy Inception Date Currency Type Format Entry Stop Target Rationale at inception Friday, 20 Wednesday, 18 January, 2017 Widener outperform Long 5Y Bmk vs. Short 20Y Bmk Pay 2F2Y IRS vs. receive 5Y IRS short UST vs long 5s10s SG IRS 2F1Y vs 1F1Y SG IRS curve is flat relative to inflation expectations and could benefit from any near term inflation overshooting fears. Switched from 5s15s to 5s20s on 16 February to fade the 15s20s curve inversion of -4. Buying into pre US President inauguration dip. Expect IRS forwards to outpace spot IRS yield gains when reflationary momentum return. Arguments for higher yields into 2017 are predominantly US centric. This being the case and in combination with our macro team s lukewarm but not recessionary growth outlook for Singapore, conditions are supportive of a lower beta SG rates market response to US rates changes on average in Therefore we expect to see UST spread moving further into positive territory over the course of Trumpflation is expected to have negative implications on US deficit, which will drive a greater appreciation of duration risk and richer term premiums. For 2017 we expect to see the term premium repriced to a higher equilibrium level. From a SG rates market perspective, a steeper 5s10s IRS curve will be justified in the above scenario at least until the FED demonstrates a significantly more hawkish stance. Anticipated fiscal policy boost will contribute towards making the long espoused FED rate normalization a more credible objective in Rate hike expectations will likely shift in favour of a steeper rate hike trajectory when the new Trump administration announces their policy details. We expect to see the follow through repricing having a greater impact on the curve beyond 2018 since it is assumed that the FED will remain conservative and data dependent. The 2 year forward 1Y SG IRS will outpace the 1 year forward 1Y SG IRS when the aforementioned repricing in FED rate hike expectations takes place in 2017.

5 5 P a g e Rates Benchmarks - SG Session Change () Country Benchmark Open High Low Close 1D 1M 1Y IRS US UST s10s UST SG MY TH ID CH HK IRS s10s IRS IRS MGS s10s IRS IRS THB Bond s10s IRS IDR Bond s10s Bond IRS - 7D repos CNY Bond s10s IRS IRS HKD Bond s10s IRS Y CNH CCS 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