The Singapore Savings Bonds 1st Anniversary Report Card
It’s been a year since the idea was mooted and hastily turned into reality. There was great fanfare but after its un-oversubscribed first auction, we are going into our 8th Singapore Savings Bonds auction on a low note which does not look too good in the report cards. A good reason for refreshed propaganda (publicity) of late.
Source : http://www.channelnewsasia.com/news/business/singapore/32-000-bought-singapore/2714490.html
Source : http://www.straitstimes.com/business/invest/singapore-savings-bonds-have-attracted-s810m-in-investment
2 consecutive articles in the Straits Times should do the trick but they went on to the hammer in the point.
Source : http://www.straitstimes.com/business/rise-in-number-of-investors-buying-singapore-savings-bonds
Then they made the economists, analysts and the publicity hungry folks in the financial market talk about it.
Source : http://www.straitstimes.com/business/invest/7-myths-debunked
With all these blogs, reporters and experts telling us only the good things, I have yet to come across any decent financial critique sites in Singapore except for our little website here that is, of course, loss making and hence, irrefutably unbiased ?
Our comments on the Singapore Savings Bonds last year by our in house bond market expert who did a lovely table of comparison (that was useful for many reporting novices).
Source : https://tradehaven.net/more-funny-stories-on-retail-bonds-and-singapore-savings-bonds/
And our observations made in July last year.
- Fixed deposit rates have stealthily and steadily edged higher since the announcement even though SIBOR and SOR have come off their highs. A sign that banks acknowledge the small turf war on deposits.
-
I have been getting more calls, almost on a daily basis, from banks and insurance companies selling savings plans.
-
The savings bonds will be useful for the next generation of workers seeking some insurance for that rainy day savings to avoid the situation we have now.
-
And a pedantic one for those finance afficionados.
The step up coupon structure of the SSB would make them higher duration than the typical 10Y SGS given you get less coupon at the beginning and the large ones only at the end.
In that sense, the true semi annual yield would work out to be less than the 10Y bond’s yield.
And we left some food for thought as far as useful financial products are concerned for an “unemployment” insurance scheme that workers can contribute to for the rainy day.
The Report Card
The Singapore Savings Bonds have been good for the markets even if it is not selling like hotcakes.
It has served its purpose as a wake-up call for the banks and investors alike.
- SSB are a small time deposit alternative
- SSB are small time risk free alternative to higher risk dividend stocks and Reits
- SSB has made previously small depositors think about their savings
Coming to the part of constructive criticism which has been missing in the local media reports, the Singapore Savings bonds have been much hyped to dismally pathetic reception.
Charting out the take up of the bonds, this is what we have.
Tabulated.
Can we blame the MAS for over estimating the demand ?
No.
Because Singaporeans are an asset rich and cash poor lot ?
Or it is because Singaporeans do not generally invest in products that has no prospect for capital appreciation except for life insurance ?
My opinions.
- SSB are too volatile !!! Look at the yields falling from 2.63% to 1.94% which is enough to make investors balk just watching those rates collapse. (that is an opportunity loss of 6.9% compounded for 10 years on the investment ! just using plain math which is wrong but close enough).
- With yields fluctuating like crazy from month to month, would an investor be comfortable ? They are using 1 month worth of data to derive a rate that is fixed for 10 years ! That is enough to make even me HESITATE.
- Confusing roller coaster coupon structure? Investors not only have to consider the payouts through the 10 years. “Aunties and Uncles” would give up on the fine print details just for that 100 buck investment.
- SSBs give no potential for profits and have underperformed government bonds to date, which is frustrating, no doubt, for an investor like those mentioned in a ST article last weekend.
“All three portfolios are limited to instruments listed on the Singapore Exchange (SGX) to keep them simple, accessible and easy to monitor, and also limited to the Singapore Savings Bonds (SSBs), which can be bought via automated teller machines. …………………… There is no “perfect candidate” so the panel ended up selecting the ABF Singapore Bond as the best proxy for the bond positions. This benchmark is made up of Singapore Government or quasi government bonds, which makes it a good benchmark for the SSB component of the portfolios. The underperformance for this sub-sector ranges from 2.69 per cent (Mr Goh) to 2.99 per cent (Ms Chee), and the reason for this is that Singapore Government bonds have done very well this year up to last month. In addition, the iShares Asia Bond ETF is invested in US dollar bonds, and the ETF has delivered a negative return since its inception mainly because of the 6 per cent correction in the US dollar relative to the Singdollar.” See more at: http://business.asiaone.com/news/all-3-portfolios-outperform-benchmarks#sthash.NGRgg0qI.dpuf
- The S$100k cap on SSB holdings per person probably explains the demand in the first 2 auctions where retirees may have maxed out their quota which makes one wonder how that number was derived.
- SSB are ideally a life insurance substitute for those whole life plans with those unguaranteed returns that usually never materialize and premiums are eaten away on early surrender and even if you hold it for its 30 year term, payouts are disproportionately low and outside your control.
- Pairing constant SSB investments with a term life policy (just pure insurance), would be ideal if not for the $100k cap.
We wrote off the impact of the new Singapore Savings Bonds last year but I would beg to differ a year later.
The impact of SSB on the market is a bit more far reaching than the 32,000 people who have $ 853 million invested in them. We have seen banks paying more for deposits and more robust deposit linked products in an industry wide shake up.
If we can tweak the SSB structure a little for the future, we may even get the insurance industry to clean up their act.
Some (but not too many) suggestions :
- Use a 3 monthly 10Y SGS yield average instead of only a single month to combat the volatility of the yields.
- Standardize the yearly returns to a less confusing payout pattern. The current method is the most equitable derived from market prices of the entire SGS curve but for an investor looking at the Jan 2016 SSB for instance, the 1-10Y spread is 1.37%(2.58-1.21%) but the next issue will only be 1.04% (1.94-0.9). It is too much to expect investors to pay attention to the entire curve or expect them to understand the logic behind the returns.
- Increase the quota per person to allow more people to use the SSB for say, insurance investment substitution etc.
Verdict : Still a good thing. Now let’s get that unemployment insurance scheme up.
PS : We part with a thought for investors to go hmmmm. There is a new 10Y SGS auction end May which means we shall have a new benchmark 10Y bond on 1st of June. All things equal, the supply should give us a better yield to buy those SSBs. Yet the SGS will probably see the profits because the new bonds usually rally after an auction, because it is not nice to lose money on SGD 2 bio worth of new bonds, leaving SSB investors out in the cold again.
The Singapore Savings Bonds 1st Anniversary Report Card
It’s been a year since the idea was mooted and hastily turned into reality. There was great fanfare but after its un-oversubscribed first auction, we are going into our 8th Singapore Savings Bonds auction on a low note which does not look too good in the report cards. A good reason for refreshed propaganda (publicity) of late.
Source : http://www.channelnewsasia.com/news/business/singapore/32-000-bought-singapore/2714490.html
Source : http://www.straitstimes.com/business/invest/singapore-savings-bonds-have-attracted-s810m-in-investment
2 consecutive articles in the Straits Times should do the trick but they went on to the hammer in the point.
Source : http://www.straitstimes.com/business/rise-in-number-of-investors-buying-singapore-savings-bonds
Then they made the economists, analysts and the publicity hungry folks in the financial market talk about it.
Source : http://www.straitstimes.com/business/invest/7-myths-debunked
With all these blogs, reporters and experts telling us only the good things, I have yet to come across any decent financial critique sites in Singapore except for our little website here that is, of course, loss making and hence, irrefutably unbiased ?
Our comments on the Singapore Savings Bonds last year by our in house bond market expert who did a lovely table of comparison (that was useful for many reporting novices).
Source : https://tradehaven.net/more-funny-stories-on-retail-bonds-and-singapore-savings-bonds/
And our observations made in July last year.
I have been getting more calls, almost on a daily basis, from banks and insurance companies selling savings plans.
The savings bonds will be useful for the next generation of workers seeking some insurance for that rainy day savings to avoid the situation we have now.
And a pedantic one for those finance afficionados.
The step up coupon structure of the SSB would make them higher duration than the typical 10Y SGS given you get less coupon at the beginning and the large ones only at the end.
In that sense, the true semi annual yield would work out to be less than the 10Y bond’s yield.
And we left some food for thought as far as useful financial products are concerned for an “unemployment” insurance scheme that workers can contribute to for the rainy day.
The Report Card
The Singapore Savings Bonds have been good for the markets even if it is not selling like hotcakes.
It has served its purpose as a wake-up call for the banks and investors alike.
Coming to the part of constructive criticism which has been missing in the local media reports, the Singapore Savings bonds have been much hyped to dismally pathetic reception.
Charting out the take up of the bonds, this is what we have.
Tabulated.
Can we blame the MAS for over estimating the demand ?
No.
Because Singaporeans are an asset rich and cash poor lot ?
Or it is because Singaporeans do not generally invest in products that has no prospect for capital appreciation except for life insurance ?
My opinions.
“All three portfolios are limited to instruments listed on the Singapore Exchange (SGX) to keep them simple, accessible and easy to monitor, and also limited to the Singapore Savings Bonds (SSBs), which can be bought via automated teller machines. …………………… There is no “perfect candidate” so the panel ended up selecting the ABF Singapore Bond as the best proxy for the bond positions. This benchmark is made up of Singapore Government or quasi government bonds, which makes it a good benchmark for the SSB component of the portfolios. The underperformance for this sub-sector ranges from 2.69 per cent (Mr Goh) to 2.99 per cent (Ms Chee), and the reason for this is that Singapore Government bonds have done very well this year up to last month. In addition, the iShares Asia Bond ETF is invested in US dollar bonds, and the ETF has delivered a negative return since its inception mainly because of the 6 per cent correction in the US dollar relative to the Singdollar.” See more at: http://business.asiaone.com/news/all-3-portfolios-outperform-benchmarks#sthash.NGRgg0qI.dpuf
We wrote off the impact of the new Singapore Savings Bonds last year but I would beg to differ a year later.
The impact of SSB on the market is a bit more far reaching than the 32,000 people who have $ 853 million invested in them. We have seen banks paying more for deposits and more robust deposit linked products in an industry wide shake up.
If we can tweak the SSB structure a little for the future, we may even get the insurance industry to clean up their act.
Some (but not too many) suggestions :
Verdict : Still a good thing. Now let’s get that unemployment insurance scheme up.
PS : We part with a thought for investors to go hmmmm. There is a new 10Y SGS auction end May which means we shall have a new benchmark 10Y bond on 1st of June. All things equal, the supply should give us a better yield to buy those SSBs. Yet the SGS will probably see the profits because the new bonds usually rally after an auction, because it is not nice to lose money on SGD 2 bio worth of new bonds, leaving SSB investors out in the cold again.
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