Monday, September 28, 2015

Singapore Savings Bond: 100% allocation to all applicants

So much for people worrying if they wouldn't get the full amount applied, eh?  It's almost like a bad IPO, haha.

From the recent MAS media release today, it is now known that the 1st virgin maiden issue was massively under-subscribed.

If you check out the SSB maiden issue (Oct 2015), the amount available to be allocated is a staggering $1.2 billion. This issue was pathetically 34.6% subscribed.

Only a total of $413,161,000 was applied for by a puny puny 19,505 applicants (or 3 out of every 1000 people you see in Singapore), and that works out to be an average of $21,182.31 applied per person.

And yet I can assure you tons of people bought the GE 2% policy, which is bullshit.

You can bet your sweet ass that all the cash rich upper class Singaporeans dumped $50,000 (max limit per issue) into this issue and will be dumping $50,000 into the next issue, which would probably be yielding even higher. My estimate is 15bps higher on the tail end of the curve.

What more is that most of the people with $50,000 to throw at this have probably already done it, so in the issue after the next, the amount of people as well as the dollar value is going to massively shrink.

I don't know if MAS will accordingly lower the total amount available in the future since this kind of under subscription looks pretty bad. However, I do hope that they do not lower the amount and take into the account why they are offering the SSB in the first place. This big under-subscription is a fantastic thing for those people who have chosen to add the SSB as a tool into their portfolio! You do not have to worry about redeeming your previous SSB to roll into a higher yielding issue and not being able to apply for the full amount in the next auction. There is very low risk of not being fully allocated and thus bearing some opportunity cost waiting in cash until you can stuff the balance into the next issue.

My thoughts on the SSB still remain the same: Just like many many many many of the other available tools provided by the government that individuals are free to use to improve their financial situation (CPF, SRS, CPF Life, Medishield, DIRECT insurance, etc etc), the SSB is likely to be misunderstood and underutilized, particularly by the people that would benefit from it the most. It's just like term insurance. I bet if you compare the average income of term insurance buyers vs whole life insurance buyers, you would be startled by the findings.

When AK was talking about CPF, I think he hit it right on the nail when he called it a "self-help institution". CPF was not created to provide charity for Singaporeans. CPF is a tool that can be used by the individual to help themselves, only if they know how to use it. This is similar to the whole slew of other government programmes. It is only great for the people who know about them and how to use them. Ignorance might be bliss, but it might also be costing you... a lot of money.

3 comments:

  1. A lot of people out there just wish to be spoonfed, with this sort of mentality many have gotten deceived and trapped by agents. What's particularly worrisome is that many of these financially apathetic individuals hold higher education qualifications. There's definitely a huge gap in terms of financial literacy and the level of mainstream education.

    Anyway on the topic of SSB, given that the rate would be in the region of 2.8% in the next issue do you think it is wise for me to liquidate my september application (2.63%) and dump it into the Oct SSB? Planning to hold till maturity so this would effectively yield me another $170 or so given a $10K investment.

    Thanks

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    Replies
    1. Hi Anon,

      People tend to appreciate and like verbal guarantees from agents rather than implicit guarantees from "unknown" financial products like these. I do agree that many individuals are very apathetic when it comes to financial literacy regardless of level of formal education. I guess it's a good thing for those of us who are interested... less competition? Haha.

      I'm not sure if the new issue rate will definitely be higher yet (though I would bet so), but you can always just apply for the next issue and then redeem the current issue if you have enough liquidity, but don't want to keep it in the SSB. (due to asset allocation, forecasted expenses, liquidity needs, etc)

      I think it is worth it if it is emergency money that hopefully does not need to be redeemed, since you would reap the maximum benefit by holding it til maturity. Mr 15HWW is likely to be doing this action next month: http://www.my15hourworkweek.com/2015/09/29/some-thoughts-on-the-first-issue-of-ssb/

      The real problem comes about if you already have maxed out your allocation and are wondering whether you should redeem a bond and roll it into a higher yielding issue, and which bond would that be!

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    2. Yes thats the problem, I've already maxed out my $10K

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