In the first auction this year, the 2017 bond (SGBi3107) will be tapped. The real yield curve has shifted up some 5-8bp since the most recent report at the beginning of December. The BEI curve is more or less unchanged with the SGBi3105 as an exemption. It is down some 23bp. Short-end linkers trade (BEI rates) below what our forecast implies but given negative carry and our inflation forecast for the next few data releases, these could get even cheaper. However, in a long term perspective, the SGBi3107 is cheap and could act as a very good hedge to long positions in 3-5Y nominal bonds or FRA contracts as the market is either pricing too low inflation over the next few years or too many and too aggressive rate hikes.
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