Bond Market Development:

1
Bond Market Development The Singapore Experience
Lee Chuan Teck Monetary Authority of
Singapore Conference on Developing a Bond Market
in the UAE 12 March 2006
2
Bond Market Development in Singapore

• Overview of Singapore Bond Market
• Building Blocks of a Bond Market
• Key Challenges Ahead

3
Overview of Singapore Bond Market
Why develop a bond market?

• A deep and efficient capital market is important
  for economic growth and stability
• An overdependence on bank finance exacerbates the
  fragility of the financial system
• A well-diversified financial system facilitates
  risk management and efficient allocation of
  resources

4
Overview of Singapore Bond Market
Growth in Market Capitalization
5
Overview of Singapore Bond Market
Composition of Private Issuers
6
Overview of Singapore Bond Market
Emergence of New Products
7
Building Blocks of a Bond Market
Building a Government Yield Curve
1. Extending the Yield Curve
31 Dec 97
8 Mar 06
8
Building Blocks of a Bond Market
Building a Government Yield Curve
2. Growing the Free Float
9
Building Blocks of a Bond Market
Managing Bond Proceeds
Invest US overseas
Deposit S With MAS
Receive US
Inject S
OMO
Receive S Bond proceeds
Financial Sector
10
Building Blocks of a Bond Market
Building a Primary Market

• Primary dealers to underwrite issues

• Regular issuance calendar

• 3. Auction Rules
• Multi or uniform price
• Prevent cornering
• Non-competitive bids

• Automated Process

11
Building Blocks of a Bond Market
Building a Secondary Market

• Market Rules
• - Rules Market Practices of the SGS market
• - Guide to SGS Primary Dealers Operations
• - SGS Repo Code of Best Practice

12
Building Blocks of a Bond Market
Building a Secondary Market

• Primary Dealers providing liquidity
• Make 2-way prices for standard lot size of S5
  million

13
Building Blocks of a Bond Market
Building a Secondary Market

• Electronic platform to improve price transparency

14
Building Blocks of a Bond Market
Building a Secondary Market

• Improve settlement system
• - Move to scripless, book-entry system in 1987
• - MAS as central depository for banks
• - Banks as custodians for non-bank investors
• - Delivery-versus-payment

15
Building Blocks of a Bond Market
Building a Secondary Market

• MAS Repo Facility
• - Primary dealers can borrow securities on an
  overnight basis from MAS inventory
• - Facilitates market-making and prevent squeezes
• - Allocation based on competitive auction

16
Building Blocks of a Bond Market
Building a Secondary Market

• Developing Repo Market

17
Building Blocks of a Bond Market
Building a Secondary Market

• Promoting derivatives
• - Short-term interest rate and 5-year bond
  futures
• - Interest rate swaps

18
Building Blocks of a Bond Market
Growing the Corporate Bond Sector

• Start with Government Agencies
• Port Authority of Singapore Oct 98 (5 years)
• Housing Development Board Feb 99 (5 years)
• Land Transport Authority Jul 99 (10 years)

19
Building Blocks of a Bond Market
Growing the Corporate Bond Sector

• Facilitate foreign issuance
• - Liberalizing Non-Internationalization of S
  Policy
• - Streamline prospectus requirements
• - Tax Incentives

20
Building Blocks of a Bond Market
Growing the Corporate Bond Sector

• Foreign Entities
• Asian Development Bank
• European Bank of Reconstruction Development
  (EBRD)
• Fannie Mae
• Freddie Mac
• International Finance Corp (IFC)

• Financial Institutions
• Abn Amro Bank NV
• Abbey National Treasury Services
• Australia New Zealand Bank
• Canadian Imperial Bank of Commerce
• Goldman Sachs
• JP Morgan
• Morgan Stanley Dean Witter
• Rabobank International

• MNCs
• Ford Motor Credit
• GD Capital
• Ericsson
• Toyota Motor Credit
• UPS

21
Key Challenges Ahead
Extending to Small Borrowers
Access for Small Medium Enterprises
Investors
SME Loans
SPV
Government
22
Key Challenges Ahead
Extending to Retail Investors
Settlement
Settlement
Price Feed
Buy/Sell thru Brokers, Post-office, Internet
23
Key Challenges Ahead
Promoting to Global Investors

• JP Morgans World Government Bond Index 0.32
• Lehman Brothers Global Aggregate Index 0.14
• Citigroups World Government Bond Index 0.28

24
Key Challenges Ahead
Promoting to Global Investors
3-Year Return on JP Morgan Bond Index
25

• Thank You
• www.mas.gov.sg