4 October 2000... MAS announced today that it will carry out purchases of Singapore Government Securities (SGS), targeted at illiquid off-the-run issues. The SGS purchase operations will complement the MAS' programme of issuing larger and more liquid benchmark bonds, thereby increasing liquidity in the SGS market.
Explaining the rationale for this initiative, MAS said that trading activity in bond markets tend to focus on large and liquid benchmark bonds. There is less trading in off-the-run issues which are not as liquid. In the case of the SGS market, benchmark issues currently make up about 30% of total outstanding SGS. Increasing the relative proportion of liquid benchmark issues will boost overall liquidity in the SGS market and facilitate greater trading activity.
MAS said that for a start, its purchase operations will be targeted at the small off-the-run SGS with outstanding maturity of between 2 and 4 years. The additional liquidity injected into the market through the purchase operations could therefore be channeled into the larger benchmark bonds that MAS currently issues.
Said Mr Ong Chong Tee, MAS' Executive Director of Markets and Investments, "Bond purchase operations are commonly carried out by central banks in many developed bond markets to manage the outstanding size and liquidity of existing bond issues. The UK Gilt market and French government securities market are good examples. With the MAS' purchase operations, market participants will be able to benefit from greater liquidity in the SGS market."
Mr Ong added that the amount of SGS that MAS will eventually purchase will depend on market conditions. The SGS to be purchased will add to MAS' existing inventory of bonds that could be used for repurchase transactions in its money market operations.
MAS said that it will seek the views of key market participants, including SGS primary dealers, before finalising the details of the bond purchase operations. Details are expected to be announced within a month.
MAS conducts SGS auctions for 3-month and 1-year t-bills, as well as 2-, 5-, 7- and 10-year bonds. A benchmark bond refers to a specific bond that was issued at the most recent SGS auction for a particular maturity. A benchmark bond can be a new issue, or a re-opening of an existing issue. When a new benchmark bond gets issued, the old benchmark bond loses its benchmark status to become an off-the-run issue.