Yield plays fell like clowns in banana‐peel shoes yesterday as the Singapore stock market suffered its deepest one‐day drop in a year on fears that the US Federal Reserve would rein in stimulus measures sooner rather than later.

The Straits Times Index (STI) opened in the red, and selling picked up momentum overthe day until a bottom was finally reached at about 2:30 pm following a dramatic dive.

The catalyst for the sell down came overnight when minutes of the US Federal Reserve's latest policy meeting revealed that a number of voting members were open to slowing down the central bank's asset purchase programme as early as June if data showed sufficiently strong economic growth.

Markets latched onto that risk, even though Fed chairman Ben Bernanke had told Congress the same day that stronger signs of growth would be required to reduce stimulus.

"The market is interpreting it as very close to the end of QE (quantitative easing) or a slowdown of QE," one trader said. "The PMI (purchasing managers' index) for China also came below 50, meaning a contraction,that shows that China is slowing down." Real estate investment trusts (Reits) were particularly hit as share prices reflected new expectations of higher forward yields. The FTSE ST Reit index fell 36.49 points, or 4.1 per cent, on the day to close at 844.79.

Investors may also have been ready for an excuse to sell after the Reits' strong run so far this year.

"The Reit sector is very sensitive to interest rates," a trader said. "Some Reits went down 5 per cent. That's what they're paying out in a year in dividends. Imagine that, one year of returns wiped out."

Source: AmFraser