[SINGAPORE] Investors seeking steady income streams are reassessing their options as the yields on Singapore Treasury bills (T-bills) plummet this year, and the prospect of US interest rate cuts clouds the outlook.
The cut-off yield on Singapore’s six-month T-bill on Sep 11 was at 1.38 per cent a year – the lowest level that yields have hit this year so far, and the 13th consecutive issuance since Mar 26, for which yields have declined.
The US Federal Reserve’s decision to cut its benchmark interest rate by a quarter-point last week – the first cut since December – is expected to add further downward pressure to this existing trend, with US President Donald Trump generally pushing for a lower-rate regime.
The Fed’s move on Sep 18, coupled with the median Federal Open Market Committee member projection of two more cuts in 2025, and one more cut in 2026, solidifies market expectations of a sustained low-yield environment.
Amid this lower-yield environment, asset manager Morningstar has highlighted several income-generating funds in its report for the third quarter of 2025.
Singapore-focused fixed income
For Singapore-based investors, Fullerton SGD Income invests in bonds denominated in predominantly Singapore and US dollars, and offers a yield of about 4 per cent.
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To boost returns, the fund invests up to half its portfolio in non-Singapore dollar bonds, primarily lower-quality, higher-yielding US dollar Asian credits.
This strategy supports a 10 to 30 per cent allocation to high-yield bonds, which enhances income but increases the fund’s susceptibility to credit market sell-offs. To mitigate risk, the portfolio’s interest rate sensitivity is kept low, with its duration capped at five years, well below the benchmark’s typical seven to eight-year range.
For a more conservative option, said Morningstar, the Amova Short Term Bond follows a credit and duration-controlled approach by investing in high-grade, short-duration Asia-Pacific bonds.
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The portfolio maintains minimal interest rate sensitivity by keeping its overall maturity within a narrow zero to three-year range and does not invest in perpetual bonds. This focus on quality and short duration typically offers better downside protection in volatile markets, though it tends to lag in rallies, said Morningstar.
The underlying currency exposure of both portfolios is fully hedged to the Singapore dollar.
The search for diversified income
For those prioritising income, the asset manager outlines several strategies across the risk spectrum, moving from higher-risk bond funds to more conservative options.
Barings Global Senior Secured Bond: At the higher end of the risk spectrum, this fund has a portfolio yield of around 7 per cent by targeting the senior secured subset of the global high-yield market. These holdings are collateralised against specified assets, giving them priority in a credit event.
UBS US Growth and Income: This hybrid strategy invests in both US stocks and bonds, using a covered-call overlay to enhance its portfolio yield to a target of 5 to 6 per cent a year. However, to achieve its income target, the fund maintains a relatively large exposure to high-yield bonds of typically 30 to 40 per cent, which Morningstar warns may hinder its ability to protect the portfolio during market stresses.
Wellington Asia Quality Income: This equity income fund taps the Asia ex-Japan opportunity set, aiming for a portfolio yield of around 4 per cent alongside capital appreciation. It uses a quality-focused, price-conscious approach to invest in companies that offer high-dividend yields. The fund, launched in August 2023, has delivered an “impressive” performance, said Morningstar.
It met its yield objective with lower volatility than the benchmark over its brief life, though it has yet to be tested in an adverse environment, the research firm added.
