More Options for Bond Investors as US Treasury Yields Close In on 5%

Yields in major sovereign debt markets, including Singapore's, have also risen

- Chor Khieng Yuit and Sheila Chiang

A recent sell-off in United States bonds, driven by rising fiscal risks, persistently high inflation and slower-than-expected rate cuts, has pushed US Treasury yields to their highest levels since the pandemic.

The 10-year US Treasury yield on Jan 13 rose to 4.788 per cent, the highest since November 2023.

This surge has spilled over into global markets, causing yields in major sovereign debt markets, including Britain's 10-year gilts and Japan's 10-year government bonds, to rise sharply. Germany's 10-year bond yields, which are the benchmark for the euro area, rose to a seven-month high.

Singapore's 10-year government bond yields have also risen, climbing from around 2.7 per cent to 2.8 per cent in December 2024, to over 3 per cent this month.

Returns on shorter-term six-month Treasury bills in Singapore have risen in tandem with the increase in longer-dated bond yields here.

In the last auction for six-month T-bills in Singapore on Jan 2, the cut-off yield rose to 3.05 per cent from 3.02 per cent during the Dec 19, 2024, auction and 3 per cent in the Dec 5, 2024, auction.

The next auction for six-month T-bills will take place on Jan 16, while 2025's first auction of one-year T-bills will happen on Jan 23.

Mr Eugene Leow, head of fixed income research at DBS Bank, said the yield for six-month T-bills should hover around 3 per cent, unless the US Federal Reserve cuts rates further in 2025.

Mr Leow had earlier expected T-bill yields to soften at around 2.5 per cent by the middle of 2025.

However, the decline in T-bill rates has stalled on the back of a flurry of firm US economic data, making the case for further interest rate easing less compelling, he said.

T-bills became popular with retail investors here when yields climbed along with interest rate hikes in the US in 2022 and 2023.