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Risk-free rates continue to ease, so markets likely to stay resilient

Risk-free rates based on yields of both 10 year SGS and 10-year US treasuries continue to ease

Yields on the 10-year Singapore Government Securities (SGS) have fallen to 3% as at Nov 25. Its decline has been a lot more pronounced than that of the yield on 10-year US treasuries. This is probably because the local system is quite liquid. Declining yields on 10-year SGS may suggest that yields are likely to decline on the popular 6-month T-bills that retail players have piled into.

A quick glance at M3, which includes currency, deposits with an agreed maturity of up to two years, deposits redeemable at notice of up to three months and repurchase agreements, money market fund shares/units and debt securities up to two years, has been rising steadily throughout this year.

Yields on 10-year US treasuries have also abated to 3.6905%. The chart shows the yield falling below the confluence of its 50-day moving average and the neckline of a minor top formation at 3.8704%. This may cause yields to inch towards their 100-day moving average, currently at 3.4146%.

The Straits Times Index made  high of 3,286 on Nov 17 and retreated 28 points week-on-week to end the weekof No 21-25 at 3,244. Directional movement indicators appear supportive of further rallies, but quarterly momentum - which is hovering at its equilibrium line - needs to move up and away from is equilibrium line decisively. Immediate support durng the current lull in the market is at 3,228, the level of the flat 200-day moving average. At some point, the Nov high of 3,286 - which coincides with the resistance area of 3,292-3,300 - should be breached on the upside.

Yield sensitive equity - such as S-REITs - could continue their rebound as they take their immediate unit price off the yield spread. This is despite the negative impact of firmer and rising policy rates on their distributable income and DPU.

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