Nomura warns SGD rates could underperform as market positions unwind

SINGAPORE: Nomura has entered a two-year Singapore dollar (SGD) trade against US rates through the March International Monetary Market (Mar-IMM), with a conviction level of 3 out of 5, targeting a 25 basis point gain by the end of March, as SGD rates have outperformed US rates since mid-January.

Still, Nomura cautioned that an unwinding of market positions could lead to SGD rate underperformance, particularly in shorter-term maturities, the Singapore Business Review reported.

The Singapore Overnight Rate Average (SORA), a key measure of borrowing transactions, has dropped sharply to an average of 2.5% in February, indicating temporary liquidity shifts. Meanwhile, the Singapore dollar nominal effective exchange rate (S$NEER) is trading 125 basis points above the mid-point of the Monetary Authority of Singapore’s (MAS) policy band, according to Nomura.

Loan growth in Singapore was particularly strong in December, driven by both commercial and consumer lending. As a result, banks may reduce their receiving activity in the Overnight Index Swap (OIS) market as the share of time deposits declines, Nomura noted.

Nomura added that SGD rates appear overvalued relative to the implied S$NEER metric. For the first time in four years, the implied SGD rate is above the three-month SORA rate, suggesting that markets may be expecting monetary easing.

While markets anticipate easing trade tensions, Nomura remains cautious about possible tariff escalations, which could hurt Singapore’s growth and renew expectations for MAS policy easing. /TISG

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