Singapore Savings Bonds – Comparison, Thoughts and Implications
Is it a bird ? Is it a plane ? Is it a bond ? Or what is it ?
Singapore Savings Bonds – a sort of bond but more than that.
My 2 cents worth and do not hold me to it.
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More announcements today on the Singapore Savings Bonds :
Applying For The Singapore Savings Bonds
http://www.mas.gov.sg/news-and-publications/media-releases/2015/applying-for-singapore-savings-bonds.aspx
Implications
- more generous quota than expected
- a bane on endowment policies because people would not need them as much. Just a term life and this SSB which would give a better return than those tricky insurance policies that have plenty of downside, even after 10 years.
- a bane on bank savings accounts because even if you hold the SSB for just 6 months, your interest (around 0.9%) would be higher than what banks would be paying for your savings accounts that have less than $50k in it – banks would have to buck up for those little accounts that they have taken for granted for too long.
- SSB, with their implied AAA rating, are safer than bank deposits or insurance deposits which would give banks and insurance companies a run for their small time money (<100k).
- encourages retirement planning and to foster bond market awareness.
- the pre-set coupon is good for astute investors because they would know whether to participate in the auction based on last month’s yield which they can compare to current yields.
An Investment/Trade Strategy
Retail bond traders rejoice (note for up to 100k).
If the 10Y SGS yield is higher than the prior month’s where the Singapore Savings Bonds would be issued at, buy the 10Y SGS.
If the yields collapse by say 0.32%, you would have made 0.2% (cross the 0.12% bid offer spread on the SGX). That would translate to about 2% (rounded up) return.
Cash out the SGS and park into the SSB which has no capital downside but pays interest.
When the SGS yields rise again, cash out the SSB and buy the SGS. If not, hold on to the SSB till another opportunity arises.
Insurance Replacement Plan
Buy a term life plan and use the rest of the money you intend for those Education or Endowment policies for the SSB that guarantees no downside and there are no “unguaranteed” extra returns that may never transpire !
My Thoughts
Kudos to the government for planning ahead for the aging population.
This is the start of bond education in Singapore and a bond investment culture.
SSB would be the precursor to the revival of the retail bond market as we prepare for retail bonds next.
And having said that, Tradehaven intends to conduct a Singapore Bond Market Seminar. Do check for details coming out soon ! And please feedback if you are interested.
Continued in …. https://tradehaven.net/market/more-funny-stories-on-retail-bonds-and-singapore-savings-bonds/
Looks similar to a bond ladder which is useful in an increasing ir environment (2015’s prophecy) but minus the price risk.
100k quantum is large n meaningful but control mechanism will be in the size of issuance determined by Mas
Should create better awareness on term of structure of sgx curve which will be beneficial for subsequent investing in retail corporate bonds
All in all good fixed deposit proxy with extension kicker for the older generation especially, will keep banks more aggressive esp for those looking to secure sgd funding through retail deposits
Got a feeling that with only $2-4 bio per annum, every issue would be oversubscribed.
“And having said that, Tradehaven intends to conduct a Singapore Bond Market Seminar. Do check for details coming out soon ! And please feedback if you are interested.”
I am interested.
Thank you for the support ! At least we have 1 participant now !! Hahaha !
I’m interested in your seminar too. Have been following your website for a while. The data and commentary on SGD bond market is really helpful! Thanks for keeping it up-to-date.
Yippy ! Now we have 2 !
Love the comparison table! Makes it very clear and easy to understand. Would definitely be interested in joining a seminar too!
Thanks for the vote of confidence. I would be so honoured !
Bigger and better table coming along !
Thanks for all your articles. I am very interested in the seminar.
Great !! Now we have 4, at least !
me too!
Great news ! We are at 5 !
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me too. i’m keen on your bond seminar should you have one.
thanks 🙂
We have 6 now ! Hurray !
Hi,
Re your trading strategy, what about the situation when the SGS yield rise (price drop), what do you do?
With higher yields, future SSB yields will be higher too, so you are stuck with the SGS at a lower yield. There is no capital guarantee so you have a paper loss.
Trader
Yes. That is what would happen if you had bought the SSB instead of the SGS too – lower yield.
Paper loss is same as holding the SSB to maturity.
However, the you have an option to reedem the SSB and buy a new one with higher interest rate. I.e. there is a certain degree of inflation protection.
This is when the SGS buyer who was hoping for price to increase (rates to drop) will suffer because he cannot exit without a loss.
Well, there are many possibilities so we wil have to assume you know what you are doing eg. perhaps it is easier to sell the SGS at a 0.2ct loss and earn a coupon of 0.5ct etc.
Also, you are assuming that you can replace the SSB that you sell at a higher yield but it could be oversubscribed, of course, because everyone will have the same idea.
If you DO NOT WANT TO LOSE any money on the principal and have the option of redemption, then the SSB is for you. It really depends if you want to take a trading risk and also if you know enough about the interest rate markets to do so with a certain peace of mind.
Is the bond seminar over or still in the plans? I’m keen!
Yes. Still on.
Need to get at least 30 participants willing to pay $188 for a 3 hr affair, so let’s see how it goes.