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.
More announcements today on the Singapore Savings Bonds :
Applying For The Singapore Savings Bonds
- 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 !
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.