Dealers in Singapore have started to quote 15-year Singapore dollar interest-rate and foreign exchange swaps for the first time ahead of this week's inaugural 15-year bond issue, a SGD2.2 billion (USD1.25 billion) deal by the Lion City. Swaps have traditionally gone out only as far as 12 years.
Mack Kazi, head of interest-rate derivatives trading at ABN AMRO in Singapore, predicts "monthly volumes could be around a few hundred million Singapore dollars within a year." Prudential Portfolio Managers Singapore will consider using the swaps to convert long-dated floating-rate notes issued by local corporates into synthetic fixed-rate notes, according to a portfolio manager. He added, "this is a good development for the market," but predicts it will take time before it becomes liquid.
"The new government benchmark will be used as the basis to price longer-dated deals," said Michael Pieri, director of local currency fixed income trading at UBS Warburg in Singapore. He expects foreign companies, particularly Western ones looking to fund themselves at longer maturities will turn to the Singapore market. "In the nature of the Singapore market, there is a large amount of money held by insurance companies, which have a skewed demand for longer-dated assets," he added. Foreign companies will also be able to issue long-dated bonds in Singapore and enter foreign exchange swaps, since banks are now willing to price 15-year swap rates.
"I expect the first interbank trade to commence within a month," added Pieri. The major players in Singapore dollar interest-rate products are Barclays Capital, Deutsche Bank, the Development Bank of Singapore, J.P. Morgan, and UBS Warburg, according to one-trader.
ABN AMRO's Kazi thinks large state corporations will likely show interest in longer-dated cross-currency swaps to hedge foreign assets, declining to elaborate on specific companies. Although volumes will increase it would be unlikely for firms to hire traders in the near future specifically for longer-dated Singapore interest rates, continued Kazi.
