How Ben Bernanke's shocking statements affected Singapore REITs

Market started to speculate.

According to CIMB, SREITs saw a broad-based selldown last Thursday (23 May), alongside rising bond yields after Ben Bernanke’s statements left the market speculating that QE measures may be withdrawn earlier than expected.

The sector now trades at a spread of 400bp, just a shade below the long-term average of 409bp, after both bond and REIT yields rose.

Here's more from CIMB:

An abrupt end to QE and sharp spike in bond yields would impinge negatively on REITs given their impact on spreads and refinancing costs.

That said, our strategists/economists expect a more orderly rollback of QE closer to year-end, in conjunction with stronger US economic growth.

They do not expect a one-off withdrawal or sharp withdrawal when the recovery remains fragile. At current spreads, we think that the expected marginal pick-up in yields from current low levels should leave SREITs attractive.

The defensive nature of the sector will hold up well in a tactically cautious environment while debt maturity is fairly well-staggered to minimise the impact of any spike in interest costs on refinancing.

Further out, improved economic growth (sparking any QE withdrawal) should feed into rental increases for REITs, particularly for those with shorter WALE.

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