The recent rise in US Treasury yields has created an opportunity for USD investors to lock in higher yields in short-dated bonds. For investors seeking incremental income over USTs, OCBC’s US$750mn 4.63% covered bonds due September 2029 offer exposure to a Singapore bank rated AA- by S&P, with an additional layer of protection from residential mortgage collateral.
As of 15 October 2026, OCBC’s September 2029 covered bond offered an indicative yield of 5.02% and a Z-spread of 42.2bps. Supported by OCBC’s credit fundamentals and substantial mortgage collateral coverage, the bond provides an option for conservative USD investors seeking short-dated income with additional credit protection. Its spread is broadly in line with DBS’s comparable covered bond, suggesting that the investment appeal lies primarily in its defensive credit characteristics rather than a significant valuation discount.
OCBC Credit Profile: Earnings Resilience and Stable Asset Quality
Earnings remained resilient. In 1H26, net interest income declined 3% YoY to $4.48bn as NIM narrowed 25bps to 1.73% amid lower interest rates. The impact was partly offset by an 11% increase in average interest-earning assets to S$524bn. Meanwhile, non-interest income rose 36% to S$3.51bn (44% of total income), driven by growth in (i) net fee income, up +26% to S$1.41bn. (ii) Net trading income: +46% to S$1.13bn. (iii) Insurance income: +49% to S$791mn.Higher non-interest income helped offset margin pressure and supported overall earnings despite the lower interest rate environment in 1H26.
Asset quality remained stable although two Greater China corporate real estate accounts were downgraded. The NPL ratio held at 0.9%, although NPAs increased 4% YoY to S$3.13bn, with new impairments mainly arising from two Greater China corporate real estate accounts. Nevertheless, NPA coverage remained high at 163%, while annualised credit costs stood at 18bps in 1H26, suggesting that credit losses remain manageable.
Capital adequacy moderated, while funding and liquidity remained sound. The fully phased-in CET1 CAR declined to 14% from 15.2% in 1Q26 due to dividend payments and higher risk-weighted assets. While the ratio remains above regulatory requirements, it is now at management’s 14% operating target, leaving limited headroom for further capital erosion without offsetting earnings. Customer deposits grew 13% YoY to S$459bn, with a loan-to-deposit ratio of 78.4%, while the LCR and NSFR stood at 131% and 109%, respectively.
Cover Pool Quality and Collateral Coverage
Low Mortgage Leverage
The bond is issued under OCBC’s US$10bn Global Covered Bond Programme, with a guarantee from Red Sail Pte. Ltd. As of 31 August 2026, the cover pool comprised S$9.39bn of Singapore residential mortgages across 14,607 loans.
The weighted-average unindexed loan-to-value (LTV) ratio was 49.9% (38.1% indexed), with only 1.27% of mortgage balances carrying an unindexed LTV above 70%. The pool’s non-performing loan ratio was just 0.038%. The low LTV ratios indicate substantial borrower equity in the underlying properties, providing a buffer against property price declines and limiting potential losses in the event of mortgage defaults.
Substantial Overcollateralisation
As of 31 August 2026, OCBC’s cover pool held S$9.39bn of assets against S$3.79bn of outstanding covered bonds, representing 147.8% nominal overcollateralisation (OC). The programme also passed its asset coverage test, indicating that the eligible collateral satisfied the required coverage level as of August 2026.
These figures exclude the US$750mn bond issued on 11 September. The additional issuance would reduce nominal OC if the cover pool remained unchanged, although OCBC can add eligible mortgages to maintain coverage. The August figures indicate substantial collateral protection, but updated disclosures are needed to assess actual post-issuance headroom.
Bond Structure: Additional Protection for Bondholders
The covered bond is rated Aaa by Moody’s and AAA by Fitch. It provides investors with dual recourse to OCBC and a dedicated pool of Singapore residential mortgages, adding a layer of protection compared with conventional unsecured bank bonds. The bond is scheduled to mature in September 2029 and includes a standard soft-bullet feature that allows a one-year maturity extension under specified circumstances.
Relative Value: Limited Premium Over Comparable Bonds
| USD instrument |
YTM (%) |
Maturity |
Z-spread (bps) |
| OCBC 4.63% |
5.02 |
11 Sep 2029 |
40.3 |
| DBS 4.486% |
5.04 |
29 Jun 2029 |
37.6 |
| UOB 4.13% |
5.11 |
15 Apr 2031 |
49.7 |
| 3Y US Treasury |
4.83 |
2029 benchmark |
– |
Source: Bloomberg, 15 October 2026. Indicative yields and spreads are subject to market movements. For executable bond prices, please contact Phillip Bond Desk at bonds@phillip.com.sg.
OCBC offers only a marginal spread premium over DBS. Its Z-spread of 40.3bps is 2.1bps wider than DBS’s June 2029 covered bond, while its YTM is slightly lower at 5.02% versus 5.04%. Given their comparable credit ratings and covered bond structures, OCBC trades broadly in line with DBS, with limited pricing differentiation between the two bonds.
UOB’s April 2031 covered bond offers a higher yield of 5.11% and a wider Z-spread of 50.7bps. However, its longer tenor also carries greater interest-rate sensitivity, making it less directly comparable with OCBC’s September 2029 bond. At a yield of 5.02%, OCBC offers only 19bps over the quoted 3Y US Treasury yield, leaving limited pick up for investors who prioritise sovereign credit quality and liquidity.
Overall, we view OCBC’s covered bond as a defensive USD income option, supported by its strong credit profile and residential mortgage collateral. However, with spreads broadly in line with comparable Singapore bank covered bonds and a modest yield pickup over Treasuries, its appeal lies primarily in credit protection and income stability rather than compelling relative value.
