The US bond market called the shots; STI down 0.4%

Date: May 26, 2025

• The STI fell 15 points or 0.4% to 3,882.42 in tandem with US bond prices
• Moody’s downgrade of US debt caused Wall St to wobble
• A weak US Treasury auction caused another wobble
• Trump’s threatened tariffs caused a third wobble
• All US major equity indices down 2.5-2.6% for the week, but…
• …market becoming more sceptical that Trump will follow through
• Singtel reported S$2.8b 2H profit, announced S$2b share buyback plan
• Nippon Telegraph and Telephone (NTT) plans US$1.6b REIT listing on SGX
• ST Engineering is best STI performer this year: SGX Research

 

Nothing to shout about

The Straits Times underwent an unremarkable trading week, recording a net loss of about 15 points or 0.4% at 3,882.42. Average daily volume hovered around the S$1.1b level, down from the S$1.5b the previous week.

Most of the focus was on the US bond market, where prices came under pressure after a Moody’s downgrade of the government’s credit rating, followed by weak demand for a Treasury auction.

Moody’s downgraded US Government’s credit, Wall St wobbled

Last week, Moody’s downgraded the credit rating of the United States due to concerns over its US$36 trillion debt, a move that brought pressure to bear on stocks and bonds.

The rating agency dropped the US government’s credit score by one notch from the pristine Aaa to Aa1. It cited rising debt and interest costs “that are significantly higher than similarly rated sovereigns.”

Last week’s cut followed a downgrade by rating rival Fitch, which lowered the US credit score by one notch in 2023.

“Over more than a decade, US federal debt has risen sharply due to continuous fiscal deficits. During that time, federal spending has increased while tax cuts have reduced government revenues,” said Moody’s.

The downgrade marked the first time Moody’s has lowered Washington’s credit score since 1949, the year it began rating US government debt.

Weak demand for Treasuries in auction and Trump’s Bill raised bond market worries – Wall St wobbled again

A sale of 20-year U.S. government bonds saw weak demand Wednesday, pushing the Treasuries to new lows for the year as yields climbed.

The Treasury Department sold US$16 billion of newly issued 20-year bonds. This auction saw heightened interest as investors worried that increased uncertainty about the U.S. economic policies would lead to less demand for the Treasuries.

Their fears were spot on – the auction saw investors accept a yield of 5.047% on the 20-year note, compared with the past six auctions’ average of 4.613%.

In response, the yield on the 10-year Treasury note surged to 4.595%, its largest one-day increase in yield since April 9, right before the Trump administration walked back global reciprocal tariffs temporarily in the face of rising yields and a slide in stocks and the dollar.

Also of concern was Trump’s “One Big Beautiful Bill Act” – a sweeping, multitrillion-dollar tax reform package spanning over 1,000 pages. The legislation passed the U.S. House by one vote – the final tally was 215-214 – and now awaits Senate discussion and approval.

The 30-year yield hit a one-year closing high of 5.089%—its highest close since Oct. 23, 2023. The selloff in the bond market spread to stocks with all three major equity indices closing sharply lower on Wednesday.

Trump threatened tariffs on EU and iPhones – Wall St wobbled yet again

On Friday US stocks fell sharply yet again after Trump posted on Truth Social that he wanted to put 50% tariffs on the European Union and 25% tariffs on iPhones. He later said in the White House such tariffs would affect Samsung and other firms that make smartphones.

Bond yields retreated on Friday as Wall Street turned to safety. Despite the drop, the yield on the 10-year Treasury note ended the week at 4.51%, marking its largest one-week rise since the week of April 11, when a Treasury market selloff led to a temporary walk back of most global tariffs. The 30-year yield was at 5.04%.

For the week, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite were down 2.5%, 2.6% and 2.5% respectively.

Does the market believe Trump?

According to US newspaper Barron’s, the market is increasingly coming round to the realisation that Trump will back off from his threats.

“I think the gravity of these types of threats is sort of being ignored by the market, and rightly so, because it’s got plenty of evidence to tell us that the administration is not going to follow through on something like this,” Sevens Report Research’s Tom Essaye told Barron’s.

“Since (the first week of April), virtually every piece of news has been to prove to the market that he will not actually do what he says he’s going to do,” Essaye says. “And so the more that evidence builds, the more the market can look past this sort of showmanship.”

Singtel reported S$2.8b 2H profit, announced S$2b share buyback plan

Singtel returned to the black with a net profit of S$2.8 billion for its second half ended March 2025, compared with a net loss of S$1.3 billion for the previous corresponding period.

This translates to basic earnings per share of S$0.1688, against a loss per share of S$0.0813 previously. Singtel’s board has proposed a final dividend of S$0.10 per share, consisting of a core dividend of S$0.067 and a value realisation dividend of S$0.033.

The turnaround came on a net exceptional gain of S$1.5 billion, as compared to a net exceptional loss recorded for the year-ago period. This came mainly from a S$1.29 billion gain from the partial disposal of its Comcentre headquarters and its share of its joint venture Bharti Airtel’s gains.

Singtel also announced that the group has authorised its first share buyback programme of up to S$2 billion, as part of the company’s capital management strategy. Singtel shares will be bought on the open market and cancelled as part of the programme.

Maybank said it is reiterating its “buy’’ on Singtel and has raised its sum-of-the-parts target price to S$4.30, factoring in a 20% holding company discount versus 25% previously.

“We believe Singtel’s holding company discount at 25-30% should narrow in light of improved operational performance, tight execution and clear and higher capital return initiatives’’ said Maybank.

Nippon Telegraph and Telephone (NTT) plans US$1.6b REIT listing on SGX

NTT Data Group Corporation, a partially-owned subsidiary of Japan’s Nippon Telegraph and Telephone (NTT), has on May 8 approved the transfer of six data centers valued at 240.7 billion yen (US$ 1.57 billion) from a subsidiary to a Singapore real estate investment trust, NTT DC REIT which is proposed to be listed on the Singapore Exchange (SGX) in the near future.

The transfer is subject to the proposed listing being approved by the Singapore Exchange and relevant authorities, NTT Data Group said in a filing note to the Tokyo Stock Exchange recently.

The six data centers, with total capacity of 90.7 MW are located in the US (4), Austria and Singapore.

NTT’s listing is likely to be the biggest IPO in Singapore since NetLink NBN Trust’s listing raised US$1.7 billion in 2017. The confirmation comes after media reports emerged last year that NTT was considering listing a data centre REIT in Singapore.

ST Engineering is best STI performer this year: SGX Research

Singapore Technologies Engineering (ST Engineering) has ranked as the STI’s strongest performing constituent this year with a 62% total return while booking the third highest net institutional inflow for the year, said SGX Research in a 22 May Market Update.

“Since listing in 1997, the stock has generated average annualised total returns of 11.5%’’ said SGX Research.

“In its FY24 Annual Report, ST Engineering attributed its resilient results amid recent geopolitical and trade tensions to its broad customer base and diversified revenue streams across geographies, providing for a balanced portfolio across its business segments’’.

“The group also highlighted that it continues to invest in critical digital technologies—including AI, data analytics, robotics, cybersecurity, 5G, and emerging fields like Generative AI and quantum computing. These are being harnessed to foster coordinated innovation and value across its aerospace, defence and smart city domains’’.