SOR and 2Y IRS to move higher on the MAS’ easing bias

Given that the MAS will ease policy by re-centring the midpoint of the SGD NEER policy band, without changing the band's slope and width, the Singapore swap offer rate (SOR) and short-end SGD IRS is expected to surge initially.
 
Since the MAS' surprise easing in January, 6M SOR has surged 50bps and the spread over LIBOR has widened to a historical high of 68bps.
 
The market is aggressively pricing in MAS easing, even after January's surprise move, and the SGD NEER has already hit the bottom of the band. 

Standard Chartered Bank notes as follows on Wednesday:

• Given the current spike in forward rates, the 6M FX forward point is likely to revert to 50-60bps after the MAS meeting, although we expect some widening as the MAS meeting approaches.
• The 6M LIBOR/6M SOR spread is also expected to widen closer to the MAS decision. However, given the current historically high spread and assuming that the market is already pricing in a 70-80% chance of MAS easing, the level should normalise after the MAS announcement.