Steady Yields in Singdollar Bond Markets

Last year served as a definitive trial for the Singapore dollar bond market, one that ultimately highlighted its remarkable durability. Entering 2025, benchmark rates sat at a cyclical peak before embarking on a consistent downward trajectory, moving in lockstep with the easing cycles of major global central banks. For investors eyeing the 2026 landscape, the resilience of these instruments, underpinned by a formidable issuer base and a robust domestic economy, offers a compelling case for defensive capital allocation.

A Significant Shift in the Yield Curve

The market’s transition was best illustrated by the Singapore Overnight Rate Average (Sora) Overnight Indexed Swap curve. In a measured response to global shifts, the curve slipped lower, primarily driven by a sharp contraction in short-term yields. By year-end, the curve had steepened significantly; the six-month Sora fell by nearly 150 basis points, while the ten-year yield dipped by a more modest 50 basis points.

Domestic government securities followed a similar rhythm. The six-month Singapore Treasury Bill (T-bill) yield experienced a dramatic tumble of roughly 140 basis points, whereas five and ten-year Singapore Government Securities (SGS) eased more gradually. This environment proved exceptionally fruitful for fixed-income portfolios. AAA-rated government bonds delivered an impressive 8.3 per cent total return—a stark improvement from the 2.3 per cent seen in 2024. Corporate bonds followed this lead, posting returns of approximately 6.7 per cent, providing a sanctuary of stability while trade tensions and cooling global growth unsettled equity markets elsewhere.

Issuance Trends and Corporate Credit Resilience

The appetite for new debt remained vigorous throughout 2025. Issuers acted with agility as benchmark rates receded, seizing the opportunity to refinance existing debt and lock in favourable funding. Roughly 150 new Singdollar bonds reached the market, raising a total of S$30.9 billion (approximately US$23 billion), slightly outpacing the previous year’s volume. Financial institutions spearheaded this activity, largely issuing long-dated subordinated debt to bolster regulatory capital.

This issuance momentum is expected to carry into 2026. As borrowing costs become more attractive and the US Federal Reserve signals further policy easing, corporate issuers are likely to remain active. Furthermore, should global economic growth face further headwinds, bond issuance will become an increasingly vital financing tool. Demand remains equally resilient, driven by a "search for income" that typically intensifies when yields fall. We expect new bond supply to be efficiently absorbed, providing a supportive floor for bond prices.

Tactical Positioning for the 2026 Landscape

The repricing of short-term rates has fundamentally altered the attractiveness of T-bills. As the government bond curve steepens, medium-term SGS securities (specifically the five to ten-year segment) now represent better value, offering a more meaningful yield pickup over short-term instruments. However, extending duration beyond the ten-year mark offers diminishing returns, as the curve remains relatively flat at the long end, failing to compensate for increased interest rate risk.

In the corporate sector, we continue to see value in the financials space, particularly within Tier-2 bank bonds. While senior bank bonds are currently trading in the low to mid-2 per cent range, Tier-2 bonds offer more attractive yields between mid-2 and low 3 per cent. We favour Tier-2 issues from established European entities such as BNP Paribas and Credit Agricole, as well as HSBC.

For those seeking slightly higher income without sacrificing credit quality, bonds from OUE Real Estate Investment Trust (REIT) and Shangri-La Hotel trade at attractive spreads relative to their peers. In a climate of moderating growth, "carefully selected, strategic positioning will be key to capturing stable income opportunities." Investors who remain selective and issuer-specific will likely be the ones to realise the best gains as the lower-interest-rate narrative continues to unfold.