Tuesday, October 27, 2015

Singapore Savings Bond: Nov 2015 Preview

Since an overwhelming 94% of voters wanted to be updated about the SSB, here is the Nov 2015 issue preview.

This is the final update before the application closes for the Nov 2015 issue tomorrow. It's only an update of 2 extra days from the previous post, but increases the data points from 16 to 18 out of 22, which makes it slightly more accurate.


I am now fairly confident that the Nov 2015 issue will be much higher on the long end of the yield curve than the following issue.

I am really very curious to see if the SSB will really be issued "inverted", meaning that the 1 year yield will be higher than the 2 year yield. Strange? Yes, it should seem so, because it is.

Anyway, to recap the benefits of the SSB:
- zero default risk
- flexibility of early termination with no penalty
- low capital outlay required of only $500
- free option to have stepped-up returns for up to 10 years
- very competitive rates compared to alternatives of the same risk

As mentioned, I will be applying for this issue. Will the interest be a lot? Honestly, I predict that the total value will be more than the previous issue, which was pretty pathetic, since those maxing $50k will continue to max out for this issue, and also the fact that there has been quite a bit more publicity about the SSB since the first epic flop. Will it be oversubscribed? I really don't think so. There should be more interest, but not that much more interest.

However, I think that the next SSB issue is going to have very low interest. It is going to be a double whammy of the elites already maxing out their $100k allocation within the first 2 issues, and also that its yields (as of now) on the long end of the curve is going to be the lowest and most unattractive so far.

With SCB offering a straight up 1.95% pa  2-year FD, it seems competition for cash is heating up and SCB is taking the first foot forward. Better catch up quick fellas, once that cash is locked in, it aint coming out for a while unless investors break the piggy bank on them. 

3 comments:

  1. Hi
    I am unsure how did you predict that the Dec 2015 issuance will be of lower interest rate than the Nov 2015 issuance.
    If SCB is already offering 1.95%pa for a 2 year FD, is locking up money for as long as 10 years to earn 2.78%pa a wise move?

    ReplyDelete
    Replies
    1. Hi Starlight,

      The prediction is based on the so far month-to-date average yields of the MAS benchmarks. As in the previous 2 issues, the full month's average yield has shown to be a very reliable indicator of the following month's issue.

      It is impossible to predict future interest rates. However, the SSB can be redeemed at any time without any penalty. If yields do move up, you can roll over into higher issues with slight opportunity cost. Constantly redeeming and then entering into FDs before the term is up sacrifices a lot of opportunity cost.

      Ultimately it is a bet between you thinking if medium/long rates are going to rise or fall. My personal gut feeling is a fall in the medium term. While I may not beat the total returns within the first 2 years, I have immediately start the beginning of my year 3 at 2.06% and jump to 3.1% the following year. Being unable to roll over money at a decent rate in 2 years time is my concern.

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  2. Great collection of blogs for anyone looking to get into investing! Thanks for sharing

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