Thursday, September 24, 2015

Apply For The Oct 2015 SSB? No.

In my previous post, I highlighted how the current SSB might no longer be as attractive as future SSB issues since interest rates have moved up.

The average for August's yields proved to be a pretty accurate reflection of the SSB that was released at the start of September.

If this relationship holds true, it means that the September average yields would be useful in predicting the yield of the next SSB if it was to be issued in November.

I went to the MAS website and I extracted the month to date yields and here are the results below:


As you can see, the average yields across the entire curve have moved upwards. Even from the very first year, yields would be higher. In fact, 1 year yields are higher than 2 year yields!

Given that there are only 4 more trading days in the month of September, if is extremely extremely unlikely that the average yield of September will dip below the current SSB offering. Even if yields collapses and end at 1% / 1.1% / 1.95% / 2.28%, we would still be higher. Yields need to absolutely crater over the next 4 bond trading days to bring down the month's average rate.

What might be an issue is if this relationship of using the month's average as a proxy is not true and MAS instead gives much higher weightage to the yield values of the last few days of the month.

However, for now, it seems that the average yield is an accurate proxy. As such, I will NOT be applying for the current SSB (to be issued Oct 2015) and I will instead postpone my issue application and wait for next month.

All the best to SSB applicants!

4 comments:

  1. Hi GMGH, a 'worrying' issue is that next mth attractive yield may lead to over subscription. Hence, this month's lesser attractive issue could be less popular, hence, more guaranteed successful to those eager, with alot of idle funds!?
    J.S.

    ReplyDelete
    Replies
    1. Hi J.S.,

      Sorry for the late reply.

      I'm not sure if people with the cash to drops are postponing their application for next month, because that would only make sense if their application amount is less than $50,000.

      However, for those with $100,000 to deploy, applying for this issue and the next issue in full is the best strategy because they are at least invested while calculating and waiting to be rolled over into a higher issue!

      Delete
  2. should consider DCA your purchase of SSB

    no point timing the market

    ReplyDelete
    Replies
    1. Hi Felix,

      Unless there is an urgent need to deploy the funds, I think it isn't too bad waiting around for a higher issue as long as it is deployed within a year. Sitting in cash in accounts like CIMB StarSaver (0.8%) or FastSaver (1%) has minimal opportunity cost while presenting a pretty decent opportunity to take advantage of the upside (higher yield issue).

      Delete

Observe the house rules.