Treasury bond yields fall again, investors may shift funds to SREITs, etc

Liu Yurui believes that local interest rates continue to face downward pressure, especially when the Federal Reserve cuts rates again. Nevertheless, the pace of interest rate declines should slow down, as major global central banks have indicated their intention to pause or slow down rate cuts, considering the inflation risks related to tariffs. The yield on six-month Singapore government treasury bills (T-bills) has continued to fall, with market participants predicting that the yield on treasury bills is likely to drop to 1.5%, which may prompt investors to shift their funds to higher-yielding investment tools such as Singapore Real Estate Investment Trusts (SREITs). In June this year, the Federal Reserve decided to keep interest rates unchanged for the fourth consecutive time, maintaining the target range for the federal funds rate at 4.25% to 4.50%. Zhan Qiwen, head of fixed income at Phillip Capital, predicted in an interview with Lianhe Zaobao that the yield on treasury bills may further decline to 1.5%. On June 19, the Swiss National Bank announced a 25 basis point rate cut to zero, ending Switzerland's era of positive interest rates for more than two and a half years, and setting the lowest benchmark interest rate among major central banks. Although the Federal Reserve's dot plot indicates that there will still be two rate cuts this year, several officials have lowered their rate expectations. Among them, seven expect no rate cuts this year, whereas only four held this view in March, and two others expect one rate cut this year. The report states: "As the yields on treasury bills, local bank current accounts, and fixed deposits decline, the growth rates of savings, current deposits, and fixed deposits in the Singapore banking system have begun to slow since January. We speculate that these retail investors may turn to the most conservative investment in real estate investment trusts." The yield on six-month treasury bills has fallen from 3.05% at the beginning of this year to 1.79% at the auction on July 17, a total decline of 1.26 percentage points. The yield on one-year treasury bills at the auction on Thursday (July 24) also dropped to 1.68%, down from the previous batch's 2.29%. Further Reading Among various real estate investment trusts, DBS Group is most optimistic about the prospects of retail real estate investment trusts, as the price-to-book ratio in this sector is currently 0.88 times, which remains attractive. In this regard, the bank's preferred stocks include CapitaLand Integrated Commercial Trust (CICT) and Frasers Centrepoint Trust (FCT). Investors Need to Consider the Risk Levels of Different Investment Tools On the other hand, investments in stocks, real estate investment trusts, or various funds may bring capital appreciation or losses to investors, depending on when they liquidate their investments. According to a recent report released by DBS Group Research, assuming that Treasury bond yields remain at a low level of around 1.8%, this may prompt investors, especially retail investors, to reconsider their investments, driving their interest in real estate investment trusts and bank stocks. The average yield of real estate investment trusts and bank stocks exceeds 6%. Assuming that about 10% of the funds in existing investments in Treasury bonds are reinvested, this means that up to 10 billion yuan will flow into the real estate investment trust sector. Liu Yuru, a portfolio manager at Bondsupermart's bond research department, pointed out in an interview that local interest rates are falling, mainly following the pace of major central banks outside the United States, which have been more aggressive than the Federal Reserve in cutting rates. As for how investors should choose other alternative investment tools, Zhan Qiwen reminded that the risk levels of different investment tools vary. Treasury bonds issued by the Singapore government are considered zero-risk investment tools, while other similar investment tools include bank fixed deposits and short-term money market funds