DOMESTIC BOND MARKET DEVELOPMENT IN SINGAPORE

Seeing the importance of having a deep and liquid bond market, Singapore has embarked on the
development of its bond market since 1997. The Monetary Authority of Singapore (MAS) has taken
several key measures to develop the Singapore dollar bond market.
These measures include:

1. Building the Singaporean Government Securities (SGS) yield curve to serve as a

benchmark;
2. Building a critical mass of diverse issuers;
3. Developing the depth and breadth of the investor base;
4. Developing the talent pool with expertise in debt origination, trading and sales;
5. Establishing the physical infrastructure and markets for hedging.

To develop SGS market, MAS extended the benchmark yield curve gradually. They issued 10-year
SGS in 1998, 15-year SGS in 2001, 20-year SGS in 2007, and 30-year SGS in 2012 while maintaining a
clear public calendar of bond issuance. At the early stages of SGS market development, the presence
of designated Primary Dealers (PDs) has been beneficial in ensuring an active secondary market.
PDs in SGS are required to provide two-way quotes under all market conditions and are obliged
to underwrite SGS issued through primary auctions. In return, PDs are given privileges so that it is
attractive for banks to become PDs.

To reduce the likelihood of collusive behavior and to avoid price distortion at SGS bond auctions, MAS
allowed both competitive and non-competitive bidding. Non-competitive bidding helped ensure that
less sophisticated investors who may not have current market information were able to purchase a
certain amount of securities at current market yield. As result, this helped achieve a broader investor
base. However, the amount of securities allotted through non-competitive bidding was controlled.
This was to avoid potential price distortions resulting from a large proportion of the total bids being
non-competitive. For T-bill auctions, only competitive bidding was permitted.
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To build a critical mass and diversity of issuers, Singapore adopted a two-pronged approach.
First, the government encouraged autonomous government organizations such as Civil Aviation
Authority of Singapore to tap the debt capital markets for their funding needs. Second, the policy
of non-internationalization of the Singapore dollar was liberalized to allow foreign entities to tap
the Singapore dollar bond market. This was subject to the requirement that the domestic currency
proceeds must be swapped or converted to a foreign currency if bought or used outside Singapore.

To broaden and deepen the investor base, Singapore took initiatives to develop the funds
management industry, educate the public on bond investment, organize bond fair, and reach out to
foreign investors.

To develop the talent pool, Singapore has introduced a tax incentive scheme to improve capabilities
in the arrangement, distribution, and trading of bonds. In addition to the pool of issuers and investors,
the presence of intermediaries is also crucial in structuring the transactions and providing secondary
market support.

To establish the infrastructure and markets for hedging, Singapore introduced an electronic
book-entry system. Moreover, to facilitate secondary market activity, wider participation has
been encouraged and costs reduced through the removal of regulatory reserve requirements
and a tax scheme.

In the process of this debt market development, Singapore has also faced challenges in increasing
market liquidity and improving the depth and breadth of the investor base. Domestic corporate
treasurers and fund managers, including insurance companies, need to be educated on proactive
portfolio management and the use of sophisticated risk management instruments. At the same time,
there’s a need to educate domestic investors about how bond investment differs from traditional
investment in property, equity, or cash.