Depressed rates buoy Singapore property, stocks

By Koh Gui Qing

SINGAPORE, Feb 4 (Reuters) - Singapore bond yields, already below inflation, are likely to slip further, boosting stocks and property despite an uncertain economic outlook.

The city-state's 10-year bond yields <SG10YT=RR> have slipped in the past months to 2.2 percent, half the inflation rate, which Prime Minister Lee Hsien Loong said may average above 5 percent in 2008. Bond yields usually climb when inflation is rising to compensate domestic investors for higher consumer prices, but economists warn they should not count on that this time.

They say the 10-year yield could fall to a low of 2 percent and will probably stay below 3 percent this year.

"The negative interest rate for Singapore is likely to support continued interest in residential property," UBS analyst Regina Lim said in a report on Friday.

UBS expects rents to rise 5-20 percent this year while property prices will remain firm.

Economists say expectations that monetary authorities will steer the Singapore dollar higher to quell inflation have boosted foreign capital inflows into the city-state, adding to the buying pressure on the Singapore dollar.

This in turn has prompted the monetary authorities to buy U.S. dollars to prevent too rapid gains of the local currency and release more funds into the banking system, depressing market lending rates at a time when inflation is at record highs.

Leong Sze Hian, president of the Society of Financial Services Professionals in Singapore, recommended investors buy stocks or overseas bonds lest "your money keeps getting smaller and smaller because of inflation".