Thursday, October 1, 2015

Singapore Savings Bond: Nov 2015, Nailed it?

This month's new SSB is out (Nov 2015 issue) and the yields are.... pretty close to what I expected.

(Actual November 2015 Issue Yields)



On top of making an estimate using the full month end data, I also made an estimate using the data available from all the days from the beginning of the month until the last day to apply. As you can see, it isn't that far off either.

Moving forward, I think it is pretty safe to say that the SSB yield will be based on the average yield of the month before the application month, which is 2 months before the issue month (ie, Nov issue is based on Sep yields, not Oct yields).

Now, as the ENTIRE curve of the Nov 2015 SSB is higher than the Oct 2015 SSB, it would make sense to redeem the Nov SSB and apply for the Oct SSB. 

The only question that people maxing out their $100,000 allocation have to ask is: Will Dec's SSB be lower than Oct's SSB?

Will I be applying for this issue? I don't see any rush to do so, since you can wait until the last day to apply and make a good estimate of the following month's issue.

Personally, I don't really see how the SSB is useful for me in my current financial situation and my financial goals, so I think it is pretty unlikely that I will be applying for it. Maybe for shits and giggles, I would apply for $1,000. 

The SSB is an awesome product, no doubt. But is it right for your situation? Only you will know the answer to that question.

Just a quick poll, should I continue to publish my SSB estimates?

Should I publish future SSB issue estimates?
 
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3 comments:

  1. Hi just a question as you would advise us to redeem our Oct and apply for Nov issue.

    Then will we still accrue interest for the month of Oct when we redeem?
    Or will the interest be void?

    I would assume then, it will definitely be rationale to redeem Oct's issue to apply for Nov if the accrued interest actually offsets the additional transaction fee.

    Even so, it still depends on the amount invested in SSB eventually since it might not be worth it for small amounts of investment if the incremental interest rate for Nov is so insignificant, that the investor will be better off not redeeming the Oct bonds to save the additional transaction fee.

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    Replies
    1. Hi Anon,

      From what I've read, yes, accrued interest will be paid out.

      If you invested $5000, the accrued interest from the Oct 2015 issue at 0.96% should pay out $4, and this would cover your application and redemption fee of the Oct 2015 bond issue and return you to a net neutral position.

      As you have rightly pointed out, the transaction costs of the application and redemption are fixed costs. This means investors with large amounts get scaled benefits since costs are fixed.

      To know if it is worthwhile to roll over the bond, expected holding period should also be take into account.

      If the holding period is short, or if the capital value is small, it will not make sense to roll over the bond.

      However, if the capital value is large and/or if the holding period is longer, there is an objective mathematical answer if the bond should be rolled over.

      (If I did not make any calculation mistakes) For the $50,000 investor holding to maturity, the difference of rolling over his bond is a net profit of $746 from the Nov issue in excess from what he would have gotten from the Oct issue.

      Delete
    2. Thanks and thumbs up for the good explanation!

      Please do continue blogging about SSB in the future yeah :)

      Delete

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