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Lofty belly SORA OISs are correcting lower. We had noted earlier this month (see here) that the rise in belly SGD rates in December looks overdone. The spike in November / December appears to be due to speculation that potential MAS tightening implies higher SGD interest rates. We disagreed. While market forces drove belly SGD rates too low in 3Q, rates swung to the other extreme in December with rates implying significant SORA hikes over the coming year. To be sure, the correction in SGD rates depended on a few factors. First, the sell USD trend picked up over the past few weeks amidst Trump’s bid to gain control of Greenland and accelerated overnight. Second, yen strength also benefitted Asia FX in general. Accordingly, as inflows come into the region, rates should come off. Third, the steep OIS curve renders carry punitive and sustained pay positions cannot be sustained. Fourth, we don’t think MAS’s monetary policy (we think a hold with perhaps some hints of tightening) has a direct translation on SGD interest rates. At current levels (about 20bps off the peak seen in December), we think belly tenor OISs look about fair. On a separate note, the SGS-Swap spread (OIS less yields) has also compressed slightly. However, in relative value terms, SGSs are still trading very rich (yields are too low relative to swaps). There is scope for further SGS-Swap compression ahead. 
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