Monday, November 23, 2015

Singapore Savings Bond: Jan 2016 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 pretty on point, save the intervention to prevent a yield cruve inversion. How will the Dec issue turn out?


This month we should not be seeing a yield curve inversion and subsequent intervention to "tame" it like we did last month. All the yields across the curve are being well-behaved and doesn't need daddy to come discipline it.

The whole yield curve has moved up from last month, with about 10bps on the front end and 20bps on the tail end.

It's hard to "rank" issues, but I would say that this is slightly more favourable than the initial October issue. While the tail end yields are ever so slightly lower, the front end is almost 30bps higher. For people who are keeping money in the SSB as an interim cash deposit and not planning to hold it for the full 10 years, this upcoming issue would be better.

Again, 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.

With only 14 out of 20 of the data points used in my calculations, there is still quite a bit of missing data. Totally making a wild guess and assuming that yields tighten for the rest of the month, I would hazard a guess that we see something around 1.20 / 1.25 / 1.95 / 2.50 for the final issue.

Anyway, long story short, if you can wait a month, a person would probably be better off applying next month for the January's issue rather than this month for the December issue.

2 comments:

  1. GMGH
    I regretted not buying the Nov 2015 bonds despite after reading your article.
    Now I have to wait.
    Thank you.

    ReplyDelete
    Replies
    1. Hi starlight,

      If you really think about it in the big picture, an opportunity cost of 20bps isn't really that much. Total returns is only about 2% less in absolute value!

      For money that we keep in SSB-like instruments, I think just knowing that it is working for us 24/7 and generating a return, while it is also capital protected and easy to withdraw gives great piece of mind!

      Delete

Observe the house rules.