SINGAPORE’S EXPERIENCE IN DEVELOPING THE GOVERNMENT BOND MARKETS Yeo Lian Sim Assistant Managing...

SINGAPORE’S EXPERIENCE IN DEVELOPING THE GOVERNMENT BOND

MARKETS

Yeo Lian SimAssistant Managing Director (Capital Markets)

Monetary Authority of Singapore

Objectives & Requirements

Building Blocks

Current Issues

PRESENTATION OVERVIEW

Why develop a Government bond market?

- To cater for budget deficits in the first instance

but more than that…

- To develop the broader bond market.

Enhance spectrum of investment options

The Benefits Of The Benefits Of

Well Developed Bond Markets...Well Developed Bond Markets...

To better match long-term financing needs

Increased efficiency through liquid markets

Mobilize domestic savings for investments

ISSUER / INVESTOR BASE

Complexity

Risk/Return

Deposits

BondsEquities

Derivatives

ISSUER / INVESTOR BASE

Complexity

Risk/Return

Deposits

Equities

Derivatives

Enhance spectrum of investment options

The Benefits Of The Benefits Of

Well Developed Bond Markets...Well Developed Bond Markets...

To better match long-term financing needs

Increased efficiency through liquid markets

Mobilize domestic savings for investments

Stronger position to attract and retain issuers, investors, and intermediaries

NECESSARY COMPONENTS

Presence of Ancillary Services

Pool of Fixed IncomeProfessionals

Good Trading & Settlement Infrastructure

Conducive Environment• regulatory and tax structure• disclosure and information flow

Vibrant Bond Market

Investors - Fund Managers- Insurance Companies- Financial Institutions- Pension Funds- Retail

Intermediarieswith expertise in arranging issues

Primary Dealers for market making

Issuers - domestic & foreign - corporates and public sector

Participants in the

Debt Market

FOSTERING A VIBRANT GOVERNMENT SECURITIES MARKET...

Step up Government Securities Issuance

22.2 23.1

29.5

36.140.8

0

5

10

15

20

25

30

35

40

1996 1997 1998 1999 1H 2000

S$b

----------------------------

76.6% increase

FOSTERING A VIBRANT GOVERNMENT SECURITIES MARKET...

Step up Government Securities Issuance

Extend Yield Curve

Improve Information Flow

Increase Number of Primary Dealers

Develop Repo Market

Develop Interest Rate Swap Market

404

534

874

602

966

0

200

400

600

800

1000

1996 1997 1998 1999 1H 2000

S$m

Daily Turnover inDaily Turnover in Government Securities Government Securities

Daily Turnover inDaily Turnover in Government Securities Government Securities

Investors - Fund Managers- Insurance Companies- Financial Institutions- Pension Funds- Retail

Intermediarieswith expertise in arranging issues

Primary Dealers for market making

Issuers - domestic & foreign - corporates and public sector

Participants in the

Debt Market

NON-GOVERNMENT ISSUERS

Diversified issuer base

Range of different credits and industries

Broad range of debt structures

Encourage statutory boards, local corporates and MNCs bond issues

Allow foreign entities to issue S$bonds under MAS 757

Develop the asset securitisation market

OBJECTIVES INITIATIVES

6.9 7.8 8.7

21.119.6

0

5

10

15

20

25

S$

Bil

lio

n

1996 1997 1998 1999 1H 2000

Corporate Debt IssuanceCorporate Debt IssuanceCorporate Debt IssuanceCorporate Debt Issuance

Investors - Fund Managers- Insurance Companies- Financial Institutions- Pension Funds- Retail

Intermediarieswith expertise in arranging issues

Primary Dealers for market making

Issuers - domestic & foreign - corporates and public sector

Participants in the

Debt Market

DEVELOPING INVESTOR BASE

Diversified investor base

Tapping retail investors

Increased activity from institutional investors

Develop asset management industry

Liberalise investments of Central Provident Fund savings

Tax incentives for bond fund managers and bond investments

OBJECTIVES INITIATIVES

BROADEN INVESTOR BASE

Inactive Active

Foreign

Domestic

FOREIGN PARTICIPATION HAS BENEFITS...

- Additional pool of funds- Introduces expertise and specialised

knowledge- Enhances speed of market

development- Develops ties to international markets

… AND IMPLICATIONS

- Greater responsiveness to news leading to increased price volatility

- Down-turn in bond market may lead to currency outflows

INFRASTRUCTURE

Efficient settlement and clearing procedures to reduce settlement risk and transaction cost 1986 book-entry securities, DVP & finality in MAS’ books 1998 Real-Time Gross Settlement

CDP linked to regional and international clearing systems for better foreign investor access

CURRENT ISSUES

Investor Education

Market Transparency

Corporate Governance

Electronic and Internet Revolution

Asian Bond Market

THANK YOU