Singapore Government Securities: A Strategic Counterbalance to U.S. Treasuries in a High-Yield Era

In an era where global investors are increasingly wary of fiscal overreach and currency volatility, the search for safe-haven assets has intensified. While U.S. Treasuries have long dominated the fixed-income landscape, Singapore Government Securities (SGS) are emerging as a compelling alternative. This shift is not merely a fleeting trend but a calculated response to macroeconomic realities: rising U.S. deficits, de-dollarisation pressures, and the quest for diversified portfolios in a high-interest-rate environment.

The Yield Dilemma: Quality Over Quantity

Despite a negative yield differential—hedged SGS 10-year bonds currently offer 4.15%, compared to 5.15% for U.S. Treasuries—investors are flocking to Singapore's debt. The rationale? Credit quality and liquidity. Singapore's AAA rating from all three major agencies (S&P, Moody's, and Fitch) ensures a level of fiscal discipline unmatched by many developed economies. Meanwhile, the SGS market's onshore liquidity, bolstered by active participation from global and regional investors, provides a level of market depth that rivals even some European sovereign bonds.

The yield spread between SGS and U.S. Treasuries has widened to 20 basis points in mid-2025, the largest since May 2021. This gap reflects a broader narrative: while U.S. yields have fallen by 30 basis points this year, SGS yields have dropped by 90 basis points. The disparity underscores a critical insight: investors are willing to accept lower returns for the perceived safety of Singapore's fiscal framework, particularly as concerns mount over America's $50 trillion debt trajectory and the political gridlock hindering fiscal reforms.

De-Dollarisation and the “Sell America” Narrative

The appeal of SGS extends beyond yield considerations. As global investors diversify currency exposures, Singapore's dollar (SGD) has become a strategic asset. The city-state's prudent fiscal policies, coupled with its role as a regional financial hub, position SGS as a natural beneficiary of de-dollarisation trends. This is evident in the surge of SGD corporate issuances, with proceeds often swapped into U.S. dollars via cross-currency swaps. The cost of hedging has also improved: greenback-SGD 10-year cross currency swaps now trade at -36 basis points, the lowest since April 2025, making hedged SGS more attractive relative to unhedged Treasuries.

Frances Cheung, head of FX & rates strategy at Oversea-Chinese Banking Corp, notes that Singapore bonds are “a diversification play in a world where U.S. assets are no longer the default choice.” This sentiment is echoed by M&G Investments' Peerampa Janjumratsang, who acknowledges that while hedged SGS appear expensive compared to Treasuries, their role in mitigating currency risk and geopolitical exposure justifies the premium.

Strategic Allocation in a High-Yield Environment

For investors, the key lies in balancing yield, safety, and diversification. SGS offers a unique proposition:
1. Credit Safety: Singapore's fiscal reserves and low debt-to-GDP ratio (below 100%) provide a buffer against economic shocks.
2. Liquidity Premium: The SGS market's active secondary trading and central bank support ensure smooth execution, even in volatile markets.
3. Currency Diversification: Holding SGD-denominated assets reduces reliance on the U.S. dollar, which has faced headwinds from trade tensions and monetary policy uncertainty.

However, the lower yield of SGS means investors must accept a trade-off. For those prioritizing income, U.S. Treasuries remain superior. But in a portfolio context, SGS can act as a stabilizer, particularly for investors with significant U.S. dollar exposure. Eugene Leow of DBS Bank Ltd highlights that the “grind lower” in basis spreads is likely to continue, driven by SGD corporate issuance and cross-currency arbitrage. This suggests that the relative value of SGS may improve further, especially if U.S. fiscal deficits widen.

Investment Implications

1. Core Holdings: Allocate a portion of fixed-income portfolios to SGS for its AAA rating and liquidity, particularly in high-interest-rate environments where volatility is expected.
2. Hedging Strategies: Use cross-currency swaps to hedge SGD exposure, capitalizing on the narrowing cost of hedging.
3. Diversification: Pair SGS with other non-dollar assets (e.g., German Bunds or Japanese JGBs) to reduce concentration risk.

Conclusion

Singapore Government Securities are no longer a niche play. In a world grappling with fiscal uncertainty and currency risks, they offer a strategic counterbalance to U.S. Treasuries. While the yield gap remains a hurdle, the combination of credit quality, liquidity, and de-dollarisation trends makes SGS a compelling addition to diversified portfolios. As global markets navigate the next phase of monetary policy normalization, investors who prioritize resilience over raw yield may find Singapore's sovereign bonds to be an underrated pillar of their fixed-income strategies.

For those seeking to hedge against the “sell America” narrative while maintaining access to high-quality assets, the time to act is now. The question is not whether SGS can outperform Treasuries in yield, but whether the broader macroeconomic tailwinds will continue to favor Singapore's fiscal prudence over the long term.