Rising bond yields and caution over banking outlook cause losses of 5-8.4% in bank stocks and cut 4.1% off the STI

Date: October 12, 2026

• The STI plummeted 233 points or 4.1% over the week to 5,401.89
• Banks were the main focus following concerns over rising bond yields and sector outlook
• OCBC led the way after Citi downgrade; DBS and UOB not far behind
• Rising bond yields make banks vulnerable: JP Morgan
• US Fed minutes showed officials were unanimous in raising rates
• Former Jardine Cycle & Carriage downgraded by Macquarie
• Sheng Siong took a hit on Friday after Maybank downgrade

 

Banks led the STI up, banks took it down

Heavy selling of the three banks over most of the week cut around 233 points or 4.1% off the Straits Times Index, dragging it below the 5,600 and 5,500 levels.

In fact, for most of trading on Friday it appeared as if the index would also lose its grip on 5,400 until a late bounce took it to a close of 5,401.89.

Daily turnover spiked up because of the selling of banks, hitting an intraweek peak of S$4.2b on Thursday when the index plunged 195.48 points or 3.5%.

On that day, trading of DBS alone accounted for S$1.4b or 33% of the entire market’s turnover.

 

OCBC led losses among the banks with an 8.4% fall after Citi downgrade on Wed; DBS down 5% and UOB down 7.3%

On Wed OCBC fell the most among the three banks when it lost S$1.90 or 5.9% at S$30.30 on volume of 27.1m following a downgrade by Citi from “neutral” to “sell” earlier on the same day.

By the end of the week, OCBC had lost S$2.66 or 8.4% over the five days.

The Business Times reported that analysts remained cautious on OCBC and banks as a whole, while RHB was an outlier, which maintained an “overweight” rating on the Singapore banking sector, identifying OCBC as its top pick with a target price of S$33.70 in a Wednesday report.

On the other hand, Citi set a target price of S$27.50 for OCBC, saying it expects the bank’s third-quarter earnings to be flat year on year, and growth optimism for the lender to be derailed.

This year, OCBC has had the steepest jump in its valuation, with its price-to-earnings multiple expanding by 46%. Citi noted that OCBC is trading at the tightest dividend yield spread over bond yield at 70 basis points.

Citi noted the market’s misplaced optimism on Singapore interest rates and OCBC’s exceptional first half-year wealth-related income. It forecasts the bank’s Q3 NIM to contract due to higher Singapore-dollar fixed deposit rates of 35 to 70 basis points.

The research house maintained its “buy” rating on DBS, and reiterated “sell” on UOB. It cited a preference for UOB over OCBC, “due to relative valuations/positioning”.

Over the five days, DBS lost S$3.85 or 5% at S$73.36 and UOB fell S$3.15 or 7.3% to S$39.96.

RHB in the meantime said that rising benchmark rates may provide further growth in the banks’ operating income, projecting sector net profit growth of 10% for both FY2026 and FY2027, driven by a balanced mix of net interest income (NII) and non-interest income growth.

“We think the impact may not be even, with OCBC and UOB likely beneficiaries and DBS lagging due to its NII sensitivity and hedging position,” RHB analysts said.

The firm highlighted OCBC for its “all-round balance-sheet strength and earnings momentum”. RHB recently raised its FY2027 to FY2028 net profit forecasts for OCBC by 4 to 6%, and for UOB by 4 to 5%, on the back of improved net interest margin (NIM) and NII prospects.

Meanwhile, UOB Kay Hian (UOBKH) said it remained cautious on banks as a sector, with research director Jonathan Koh citing concerns about uncertainties from the escalation and prolonged conflict in the Middle East.

However, he added: “The trends of safe-haven liquidity inflows, higher bond yields and ongoing monetary tightening favour preference for banks.”

UOBKH said that its preferred “buy” remains OCBC despite the intraday fall.

“It benefits more from growth in wealth management. Its earnings growth is the strongest at 22% year on year in H1 2026,” Koh noted.

 

Rising bond yields make banks vulnerable: JP Morgan

JPMorgan Chase & Co. issued an ASEAN banks report by analyst Harsh Modi warning that a sharp surge in long-term bond yields—particularly 10-year ASEAN and US Treasury yields—will negatively impact the securities portfolios, book values, and third-quarter (Q3 2026) earnings of Southeast Asian lenders.

DBS has the highest proportion of securities (roughly 30% of interest-earning assets), while OCBC and UOB hold around 23%.

Major Singapore banks had experienced a prolonged rally driven by record profits and wealth-management inflows, leaving them vulnerable to macro rotation and inflation/rate re-pricing fears.

“The market may also be reassessing the assumption that higher Singapore dollar interest rates are necessarily positive for banks. Higher rates can lift yields on loans and newly deployed assets, but they also push up what banks pay for deposits and other funding’’.

 

US Fed minutes showed officials were unanimous in raising rates

In the minutes of the Fed’s Sept. 15-16 meeting, released on Oct. 7, officials were unified in deciding to raise rates by a quarter of a percentage point, to a target range of 3.75% to 4%.

That marked a change from several prior meetings this year, which saw dissents to the committee’s decision to hold rates steady.

The unanimous vote suggests a firmer commitment by the committee to bring down inflation, which has exceeded the Fed’s 2% annual target for more than five years.

At the next FOMC meeting, scheduled for Oct. 27-28, FOMC members will seek to determine how restrictive policy has become as higher rates take hold, and whether they need to raise interest rates further.

 

Former Jardine Cycle & Carriage downgraded by Macquarie

Jardine Matheson Southeast Asia (JMSEA), which this week changed its name from Jardine Cycle & Carriage, shed 7.7% or S$2.27 to close at S$27.03 on Wednesday giving up most its gains from Tuesday’s rally.

In a note published on Wednesday, Macquarie Equity Research downgraded the stock to “underperform” from “neutral”, and lowered its 12-month target price by 10% to S$23.50 from S$26.

Macquarie said the earlier gains were driven largely by dividend-chasing ahead of the upcoming ex-dividend date for JMSEA.

On Tuesday, the counter had risen around 10% to close at S$29.30.

The downgrade comes as the stock trades near an all-time-high net asset value (NAV) premium of 31%, a valuation the research house views as unjustified.

Macquarie estimated that an NAV discount of at least 8% is warranted to account for Indonesian withholding tax, which affected subsidiary Astra’s dividends and overheads.

The counter typically observes “a 20 to 25% conglomerate discount, consistent with parent Jardine Matheson’s long-term level”, noted the research house.

The recent surge in the company’s share price was attributed to investors positioning for a special distribution, equating to roughly US$0.70 a share at the current price, which represents a 3.1% yield, Macquarie said.

The special dividend comprises US$0.37 in cash per share and an in specie distribution of the company’s Toyota Motor shares to its shareholders.

On the group’s corporate rebranding, Macquarie clarified that the name change “does not mean a cash offer is imminent”.

“We think paying a large NAV premium would be detrimental to JM shareholders,” said the broker, which noted that it is also plausible for JMSEA to distribute other parts of its portfolio in specie to its shareholders for “simplification”.

 

Sheng Siong took a hit on Friday after Maybank downgrade

Shares of supermarket operator Sheng Siong plunged S$0.17 or 5.5% to S$2.92 after Maybank downgraded the stock from a “buy’’ to “hold’’ mainly because of its high valuation.

“Sheng Siong remains a high-quality operator, but its strong share-price rerating now prices in much of it. At 28.4x FY26 P/E (price/earnings) & 17.3x EV/EBIT, (enterprise value/earnings before interest and tax) it is among region’s most expensive food retailers, despite offering a moderate FY25–28 NPAT CAGR (net profit after tax compound annual growth rate) of 8% & a 2.5% dividend yield’’.

“With growth normalising and slight headwinds emerging, we see limited scope for further re-rating’’ said Maybank.