More Funny Stories On Retail Bonds And Singapore Savings Bonds
More on the Singapore Savings Bonds, like I promised.
A Small Joke First
I have discussed with folks and we agree that the Singapore Savings Bonds are best described as a bond derivative of the 10Y SGS with a laddered payment structure that could potentially be a roller coaster.
Imagine what would happen if the SGS yield curve inverts, like it has done occasionally before ?
It means that the SSB would potentially have a STEP DOWN then STEP UP coupon payment schedule ! Imagine receiving 1% for Year 1 which becomes 0.9% for Year 2 and 0.8% for Year 3 then back up after (like a roller coaster) ?
More Comparisons and a Bigger and Better Table !
Will it make a difference ?
Annual Supply of SSB : $2-4 bio
Fixed Deposits of Non Bank Customers : $ 209 bio (this includes corporate deposits)
Savings Deposits of Non Bank Customers : $ 198 bio (this include corporate deposits)
Local Banks :
UOB : Total Cust Deposits $233 BIO
DBS : Total Cust Deposits $317 BIO
OCBC : Total Cust Deposits $ 246 BIO
*includes non SGD deposits
>> Conclusion : Will Not Make A Dent !
Retail Bonds
On to Retail Bonds – the other initiative discussed by the MAS back in March this year that we should expect after the SSB is launched.
They are not CPF eligible.
http://mycpf.cpf.gov.sg/Business-Partner/Gen-Info/CPFIS/CPFIS_Bonds.htm
The CPF guidelines state that bonds cannot be offered to institutional or accredited investors.
Implication : I guess retail investors are advised to just manage their personal savings with retail bonds and SSB but not their CPF funds.
Yet it is ironic as I noted 2 years ago (and nothing has changed since) that retail investors are allowed to invest their CPF monies into CPFIS approved funds that hold junk bonds (eg O&G names) as long as they are issued by a Singapore-incorporated company and retail investors cannot use their CPF funds to buy retail bonds ?
…………….
Thanks for very good info. SSB definitely not for retirement. It is meant to complement investment in funds. Since told 15 years ago that SCB was the largest fund distributor, they came up with a platform to channel your funds there. So this is just for a short term hold, key is hold your funds there. Stay invested.
Wonder if you know where to get the rates for inflation, savings and deposits globally? with historical data in table or chart for comparison.
Hey Acuni,
You can try the World Bank for that info.
Dont think the step-down and then step up would technically happen. Coupon rates are fixed at the point of issuance. The step-up coupon payment over the 10 years is to encourage people to hold till maturity. The coupon can only increase with each payment.
Yes. It is just that if they set the payment schedule according to the yield curve, there is a very remote chance that we could have a small stepdown eg. like in the case of NZ where short end yields are higher than long end yields. It would be really slim though for the case of Singapore.