Deteriorating fiscal sustainability in major economies is keeping foreign bond yields structurally higher
[SINGAPORE] UOB Kay Hian (UOBKH) has maintained an “overweight” stance on Singapore real estate investment trusts (S-Reits), favouring domestic plays as an “oasis of calm” while rising global bond yields drag down overseas-exposed assets.
The brokerage on Thursday (Sep 10) said it updated its dividend discount model for S-Reits by weighting the risk-free rate based on the 10-year government bond yields of the specific countries where each Reit’s assets are located.
Singapore’s 10-year government bond yield has risen by a smaller 24 basis points (bps) to 2.36 per cent in the year to date, it said. This is “much more resilient” compared with a larger increase of 63 bps to 4.8 per cent for US 10-year Treasury bonds, and a 82 bps increase to 2.88 per cent for Japan 10-year government bonds.
“Singapore is recognised for its fiscal austerity and conservatism,” said UOBKH. “The stable government bond yields in Singapore stand in stark contrast to rising yields in many developed countries, such as the US, the UK, France, Japan and even Germany.”
UOBKH said its target prices for CapitaLand Integrated Commercial Trust (CICT) , Frasers Centrepoint Trust and Lendlease Global Commercial Reit are nearly unchanged at S$3.06, S$2.93 and S$0.79, due to their outsized Singapore exposures being 93, 100 and 91 per cent, respectively.
At the same time, it cut its target price for CapitaLand Ascott Trust (Clas) by 27.5 per cent due to exposures to Australia, the UK and the US – totalling 40.4 per cent of assets under management.
Frasers Logistics & Commercial Trust’s (FLCT) target price was also cut, by 27.8 per cent, due to a 46.8 per cent exposure to Australia and a 9.8 per cent exposure to the UK.
Overall, the brokerage made “buy” calls for CICT with a S$3.06 target price; Mapletree Pan Asia Commercial Trust with a S$1.71 target price; NTT DC Reit with a US$1.29 target price; and UI Boustead Reit with a S$1.16 target price.
Global pressures
UOBKH noted that deteriorating fiscal sustainability in major economies is keeping foreign bond yields structurally higher.
SEE ALSO
The US faces persistent budget deficits of 6 per cent of gross domestic product and annual interest costs exceeding US$1 trillion, with government debt projected to reach 142 per cent of GDP by 2031.
Meanwhile, Japan’s debt burden has reached 233 per cent of GDP in 2026, compounded by rising debt-servicing costs and an ageing workforce.
In contrast, Singapore’s fiscal discipline and persistent budget surpluses have cemented its safe-haven status. Recurring net investment return contributions averaged S$25.1 billion annually from 2021 to 2025, funding about one-fifth of the government’s annual operating expenditure and insulating local bond yields.
UOBKH noted that 10-year government bond yields are relatively lower in Singapore, China and Japan, with the figures for the latter two at about 1.7 and 2.9 per cent, respectively. Conversely, the yields are relatively elevated at 5.2 per cent in Australia and the UK, and about 4.9 per cent in the US.
S-Reits with sizeable exposure to Singapore, China and Japan are thus set to be less affected, while those with large exposure to Australia, the UK and the US are set to be the most affected, added the brokerage.
Beyond Clas and FLCT, UOBKH also cut its target prices for Mapletree Industrial Trust and Mapletree Logistics Trust by 15.9 and 10.9 per cent to S$1.74 and S$1.15, respectively. The former has a large portfolio of data centres in the US, making up 46.5 per cent of its assets, while the latter has logistics properties in Australia, Malaysia and South Korea.
