NTUC beats summer lull debuting 3,65% blockbuster bond

Insurer NTUC Income on Tuesday night set a new benchmark in the Singapore dollar market when it priced a S$600 million ($480 million) subordinated bond. The deal was a debut bond for NTUC Income, and a rare one out of the insurance sector. As such, it attracted a blowout S$9 billion ($7.2 billion) worth of orders, the biggest book ever for a Singapore dollar bond — comfortably exceeding the S$6 billion of orders for Genting Singapore’s S$1.8 billion perpetual in March.

The leads — DBS, Citi and Standard Chartered — started out with initial price talk of 4% for NTUC Income’s 15-year tier-2 issue, which has a call option at the 10th year. The closest comparable, the outstanding Great Eastern Life tier-2, which matures in 2026, was trading at a yield of 3.9%. This put fair value of a new Great Eastern tier-2 of a similar maturity in the low 4% area and the leads felt that NTUC Income, with its government-linked halo, ought to come tighter. NTUC Income is linked to the Singapore government through the National Trade Union Congress, Singapore’s trade union.

By 2pm on Tuesday, a tremendous amount of orders flooded in, chalking up to $6 billion. This allowed the leads to tighten sharply, with the final guidance coming at 3.65% to 3.75%. The bonds priced at the tight end — at 3.65% — which was equivalent to a spread of 188bp over the 10-year swap offer rate. They found a strong bid in secondary and rose to 101 on Wednesday.

Insurance accounts were allocated 34%, asset managers 28%, private banks 20%, banks 13% and other investors 5%. Singapore investors were allocated 83%, Hong Kong investors 13% and other investors 4%.

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Singapore government sold a maiden $2.1 billion 30-year bond

The Singapore government sold a maiden $2.1 billion 30-year bond – its longest tenor to date – at an average yield of 2.65 percent Wednesday, though the auction’s results indicate many investors are wary about taking on debt with such a long maturity.

The Monetary Authority of Singapore (MAS), which runs the tender, said the cut-off yield for the sale was 2.84 percent, resulting in an auction tail of 19 basis points.

Singapore’s government has historically run a budget surplus and keeps public debt levels very low, though it maintains a local currency debt program to support the domestic corporate bond market and meet the investment needs of the government’s social securities savings scheme.

The sale of the 30-year bond, which has a 2.75 percent coupon, comes amid a flurry of Singapore-dollar denominated bond issuance over the past few months, as well as rising market demand for more robust benchmarks at the longer end of the curve as local-currency issuers look to sell bonds with longer maturities.

RBS’s head of Asia local markets strategy, Chia Woon Khian, said while the bond likely received a lot of support from life-insurance investors, the relatively long tail suggests demand for such duration from non-life-insurance buyers, such as banks, remains tepid. The auction tail refers to the spread between the lowest offer price and the average price, with a longer tail indicating weaker demand.

She said Singapore’s traditionally stable bond market has been very volatile recently due to uncertainties about the global interest rate environment and whether the US Federal Reserve will undertake a third round of quantitative easing.

“Last week, the bond market was selling off because the risk-on was looking pretty good and people were dumping US Treasuries,” Chia said.

“But just because it looked like (Fed Chairman Ben) Bernanke was gearing up for QE3, suddenly bonds started to rally,” she added, referring to a possible further round of quantitative easing in the US.

She said the 30-year yield could rise in the secondary market, though the specter of QE3 will probably prevent it going much above the 3 percent level.

The longest-dated bonds previously sold by the Singapore government had a 20-year maturity. In July 2010, Singapore state-investment firm Temasek Holdings sold a $1 billion 40-year bond, the longest maturity to date of any Singapore-dollar bond.

The MAS took up $200 million of the 30-year bond offer.

Source: Share invest