SINGAPORE (Oct 3): Bank debt sales in Singapore are tracking toward a second consecutive annual record as attractive currency swaps and cash-rich investors lure issuers to a traditionally domestic market and drive momentum that participants expect will continue.

Some US$2.4 billion (RM11.3 billion) worth of "Tier 2" notes, issued by banks for reserve capital requirements, have been sold in Singapore dollars this year — already nudging last year's US$2.6 billion record — according to London Stock Exchange Group data.

It's a modest slice of Asian markets where nearly US$3 trillion has been raised this year, but it is encouraging for a region that has been weighed down by China's slowing economy and seen a decline in dollar issuance, against a surge in Europe.

"When the dollar space is stressed, people seek out alternative markets," said Clifford Lee, managing director and global head of fixed income at DBS Bank in Singapore.

The drawcard for issuers are benchmark rates below those in dollar markets and foreign exchange forward swaps that offer a further pickup if the proceeds are converted to dollars.

"(It's currently favourable) so the market makes sense, and we are getting enquiries from more foreign issuers as we speak," said DBS' Lee. For investors the deals offer yields above 5% that are well clear of rock-bottom deposit rates and several hundred basis points above government bond yields.

HSBC, for example, raised £1 billion with a coupon of 6.8% and an eight-year term last month, and in Singapore S$675 million for a coupon of 5.3% for 10.5 years.

There is also a weight of money lending momentum and an expectation that the trend could continue. Singapore's money markets have been rallying, against the global tide, while cash has streamed into the city-state's asset managers.

"It appears there is a deluge of Singapore dollar liquidity looking for returns, and that can accelerate the opportunity for supply... despite the narrative of elevated global yields," said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

Credit Agricole and Lloyds also sold notes in Singapore last month to raise a combined S$850 million. Insurer AIA made its public debt debut in Singapore last month too, raising S$550 million. All three notes have traded firmly since, despite a selloff in global debt markets, suggesting the outlook could be durable.