After the United States lost its AAA credit rating from the last of the three major sovereign rating agencies, some of the safest assets in Asia offered investors higher yields than US Treasuries.
Investors looking to shift from the US dollar to Asia can purchase securities issued by the Monetary Authority of Singapore, which uses these instruments to manage the cash levels in the banking system. Bloomberg data shows that, factoring in currency hedging costs, the yield on three-month Monetary Authority of Singapore bills is about 13 basis points higher than that of US Treasuries of the same maturity.
The financial market turmoil triggered by US President Donald Trump’s tariff threats, along with Moody’s decision to downgrade the US credit rating last month, is prompting investors to reassess the role of the US dollar in the global economic system. Some investors are moving their funds elsewhere, and Singapore is a popular investment destination as it is the only country in Asia to have received an AAA rating from S&P Global Ratings.
Eugene Leow, a fixed income strategist at DBS Bank in Singapore, said: “Obtaining returns from Singapore’s Monetary Authority of Singapore bonds through swap transactions has always been a popular trade.” He added, “Given its AAA rating and prudent government fiscal position, Singapore government bonds are highly attractive to investors seeking diversified investments.”
To hedge, American investors can exchange US dollars for Singapore dollars in the spot market and simultaneously sell Singapore dollars in the forward market.
As concerns grow among investors over whether US Treasuries can offer sufficient compensation following the recent downgrade of the US credit rating, and amid fears that Trump’s proposed tax and spending bills will worsen the US fiscal situation, investors are increasingly seeking to shift their assets out of the US. Moody’s warned in May when it downgraded the US rating that the country’s fiscal deficit, government debt and interest burden would all rise in the coming years.
Singapore has been steadily expanding its debt market. As of the end of May, the total amount of outstanding notes compiled by the Monetary Authority of Singapore had climbed to 345.5 billion Singapore dollars (about 268 billion US dollars), hitting a record high since Bloomberg began compiling the data in 2011.
The demand for these securities seems to be very large.
Winson Phoon, head of fixed income research at Maybank Securities Berhad, said: “There are still some investors who need AAA-rated assets.” He added that given the record amount of outstanding Monetary Authority of Singapore (MAS) bills, it seems that “funds are still flowing into” Singapore.
