In a world of negative yields, Singapore still pays interest

Singapore is offering a rare opportunity to buy positive-yielding quality bonds in a world that’s rapidly turning negative.

The city-state, which pays the highest returns among economies that have AAA credit ratings from all three major agencies, will sell reopened July 2029 government debt worth S$2.9 billion ($2.1 billion) on Wednesday, the second-largest amount on record for 10-year tenors.

Singapore isn’t immune to the underlying trends in global bonds and the sale has to overcome the challenge of a yield curve that’s near the flattest on record.

The yield premium that investors receive by holding 10-year notes instead of two-year securities briefly evaporated this month, dropping to minus 1.14 basis point on Aug. 15. That’s the lowest in data going back to 1998 for this spread, which has managed to claw its way back into positive territory.

Size also matters as Germany discovered last week when it failed to meet a 2-billion-euro ($2.2 billion) target last week for the worlds first 30-year debt with a zero percent coupon.

But if Australia is any guide, the Singapore auction should see solid demand given the combination of the country’s top rating and high yields.

A flatter curve hasn’t dented investor appetite in AAA-rated Australia, which recently drew a bid-to-cover ratio of 3.69 for May 2030 notes. That was up from 2.67 at the previous offering even as the spread between three- and 10-year yields narrowed to the least since 2011.

Singapore’s July 2029 debt that’s been sold in the past yielded 1.83% in the secondary market on Aug. 22. That compares with 1.64% for 10-year U.S. Treasury notes.

Last chance

This is the last sale of 10-year notes on the city-states schedule to date, with the remaining two auctions on the calendar for two- and seven-year debt. An optional mini-auction is planned in September but the tenors haven’t been announced.

A lot of investors will be trying to catch the tail, said Eugene Leow, a fixed-income strategist at DBS Bank Ltd. in Singapore, referring to the chase for the highest yields possible. Within the AAA space, I believe 10-year Singapore government securities offer one of the most attractive yields. he said ahead of a gathering of global central bankers at Jackson Hole, Wyoming.