SINGAPORE’S government bonds are attractive as a haven from the mounting economic problems in China and a hawkish US Federal Reserve that’s prepared to keep raising interest rates, according to Fidelity International.

The city-state’s debt is alluring due to its relatively attractive yields, robust currency and AAA credit rating, said Zhu Lei, head of Asian fixed income in Hong Kong at the money manager, which oversees US$745 billion. Singapore’s debt should also benefit as the nation’s relatively low deposit rates give local banks an incentive to put funds into the higher-yielding government securities, she said.

“The front end is almost 4 per cent and the domestic market is relatively small in terms of the size versus the massive inflow and demand,” Zhu said in an interview last week. “So naturally, the assets are quite sought after because Singapore is selling its safe-haven status. It’s a parking place and we are quite bullish on the duration and foreign exchange.”

Singapore’s local-currency government bonds have lost just 2.5 per cent since the Fed started its tightening cycle on Mar 16 last year, while the world government bond index has slumped 13.3 per cent over the same period, according to data compiled by Bloomberg.

Financial hub

The island’s status as South-east Asia’s premier financial hub means it can provide investors with a shelter from external headwinds and it’s also a beneficiary of shifting global supply chains, Zhu said.

Fidelity’s clients have become more interested in exposure to Singapore assets as US Treasuries have slumped over the past four months, while China’s worsening economic outlook has sapped risk sentiment, she said.

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“If interest rates stay higher for longer, then the chance of recession and the magnitude will be even bigger,” Zhu said. “It’s just a matter of time that interest rates at this level will have some kind of impact on the economy, so that’s why people are looking for safety.” BLOOMBERG