Canada’s rating downgrade may end up benefiting Singapore debt

Canada’s loss may be Singapore’s gain. Fitch Ratings stripped the North American nation of an AAA sovereign rating on June 24, reducing the number of economies to just nine that all receive top sovereign ratings from the three major agencies.

“The club of countries with AAA ratings from S&P, Moody’s, and Fitch is small,” strategists at TD Securities, including Andrew Kelvin, wrote in a research note. “We could see some investment flows diverted from Canada” to those that retain the ratings and have positive nominal 10-year bond yields, they said. That would be Australia, Norway and Singapore, TD Securities added.

Among AAA rated 10-year government bonds, Singapore offers the highest yields both on a nominal and inflation-adjusted basis, according to data compiled by Bloomberg. Its benchmark 10-year bond yielded 0.94% on June 24, implying a real yield of 1.44%.

The data also shows that while Australia’s debt has the second-highest in nominal terms, its real yield is below what Switzerland offers.

Singapore’s central bank uses the exchange rate, rather than a policy rate, to control inflation, so weak consumer prices don’t necessarily correspond with low bond yields. That helps support the nation’s real yields. —