Singapore’s Financial Sector – Positioning for the Upturn

Singapore’s Debt Markets

MAS continues to build a deep and vibrant Singapore dollar bond market to serve as a complementary pillar of corporate fund-raising in addition to bank financing. Lessons from past financial crises showed that financial stability would be enhanced in tandem with the growing breadth and depth of local currency debt markets, as funding availability became less dependent on banks’ balance sheet capabilities and good quality investment assets became more readily available.

In line with the objective of maintaining financial stability, MAS implemented a two-part framework in 2H 2009 to anchor AAA-rated issuers in the Singapore dollar bond market, so as to increase the availability of high-grade and liquid assets for financial institutions. First, AAA-rated Singapore dollar debt securities issued by sovereigns, supranationals and sovereignbacked corporates would be accepted as collateral in the Standing Facility. Second, banks would be allowed to treat these securities as regulatory liquid assets with the same haircut as Singapore Government Securities (SGS). Since the institution of these regulatory changes, Singapore’s bond market has attracted around S$2 billion of new issuances from top AAA-rated issuers like the World Bank and KfW Bankengruppe.

As market sentiment recovered and demand for fixed income securities increased, the Singapore dollar corporate debt market stood at S$77 billion as at 1Q 2010, on the back of a three-fold increase in new debt issuance compared to the same period in 2009. Non-Singapore dollar corporate debt market stood at S$97 billion with new debt issuance increasing by one and a half times. For 1Q 2010, around S$7 billion of debt from large domestic corporates, statutory boards, foreign financial institutions and property-related firms was issued. In particular, Temasek Holdings issued five benchmark bonds ranging from 10 to 30 years during this period, which extended the corporate yield curve and provided a high-quality pricing reference for other corporate debt issues.