Friday, October 23, 2015

Singapore Savings Bond: Nov 2015 Pre-Preview

This post is similar to the post I did last month regarding the Nov 2015 issue. I am going to make a rough estimate for the issue before the closing application date, and although I might be missing the valuable last pieces of data, I would argue that we would be getting results that shouldn't be too far off it's mark.

Based on the actual Nov issue, my estimate was only off by 4%. The day-before estimate was only off by a mere 1%.

As you can see, the next issue is going to be a bit... strange. Why do I say so?

The front end of the yield curve has inverted such that the 1 year yield is higher than the 2 year yield!

On the tail end, it has dropped about 30bps at both the 5 year and 10 year mark.

What this means is that the following month's SSB would be pretty good as a short term "fixed deposit" and it becomes much worse as a long term alternative low-risk asset.

Personally, I don't think that the marginal bps widening on the front end of the curve compared to the 30bps drop on the tail end is not enough to entice me, even though I do not foresee myself holding the SSB until maturity.

However, with only 16 out of 22 of the data points used in my calculations, there is still 28% of missing data. Given the current trend of the data, I would hazard a guess that we see something around 1.20 / 1.15 / 1.80 / 2.40.

Anyway, long story short, unless there are some exceptional moves in the yield curve over the next 3 trading days before the subscription period is over, I would likely be applying for the Nov 2015 issue.

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