Rising odds of Singapore easing may see yields go up, not down

Bloomberg

A rapid deterioration in Singapore’s economic data has fuelled speculation the central bank will ease monetary policy. The result may be higher interest rates and bond yields.
Bets on the Monetary Authority of Singapore (MAS) will adjust policy have intensified after government reports over the past month showed the economy unexpectedly shrank 3.4 percent in the second quarter and exports slumped 17.3 percent in June. The trade-reliant economy has suffered amid escalating tensions between the US and China.
The data caused a jump in the three-month swap-offer rate, one of the nation’s benchmark interest rates that reflects the cost of borrowing in Singapore dollars. The gauge rose for four days after the GDP data even as borrowing costs in the rest of the world fell. The rate had previously surged in January 2015 when the MAS eased policy, and again in April 2016 when it stopped seeking currency appreciation.
A weaker currency has typically widened rate spread between Singapore and US.
The counter-intuitive relationship between monetary policy and borrowing costs is due to how Singapore’s central bank seeks to guide the economy. Instead of using interest rates to adjust liquidity, MAS does so through adjusting the currency against an undisclosed basket.
In the absence of central bank control, interest rates are typically dependent on those overseas, particularly in the US. They also move based on expectations for whether the local currency is expected to strengthen or weaken.
“We are now looking for the MAS to ease policy in October” due to deteriorating growth and slowing inflation, said Irene Cheung, a senior Asia strategist at Australia & New Zealand Banking Group Ltd in Singapore.