Wednesday, February 24, 2016

Singapore Savings Bond: Feb 2015 Review, Apr 2016 Preview

Hey everybody, here's my monthly post on the SSB closing and the forecast for next month. I'm trying to streamline my posts to make them more condensed and info-packed in a regular structure, so it's both easier for readers to quickly digest the article and for me to pump them out on a regular basis.

I have made a similar posts in previous months, and I think I will stick with this format.

First up is update of the subscription of the previous issue. As previously mentioned, the SSB will probably have $300 million available to be issued every month of 2016. While it is a HUGE drop from the $1,200 million that they were offering in 2015, the SSB take up rate has been... pathetic, so it makes sense to cut down on the total offer to boost up the fill rate. It looks a look less sad now.


For the February 2016 SSB, a just as pathetic take up rate of just over $28 million was done. That's almost 9% of the issue. Demand for SSBs look low to actually even decreasing in the future. By just looking at the absolute amount, you can see that demand is falling. Is it due to rates being too low that they aren't attractive? I personally think it's due to lack of awareness and also a huge inertia by people to apply for a CDP account and figure out how to buy them.


This month, the MAS has played nicely and given us a tight variance of the actual SSB compared to interest rates of the benchmarks, nothing more than 1% off the expected values. However, the next month might not be so, please read on.

Moving onto the next SSB, we use the same old-fashioned method of looking up the data from MAS and constructing the table below. As a refresher, the current month's rates are used as a proxy for the issue in 2 months time (For example: Feb 2016 rates are used for the Apr 2016 issue). Also, if you are in the first 3/4 of the current month, you application this month is for the bond that is too be issued on the 1st of next month (For example: Feb 2016 applicants will receive the Mar 2016 issue). I hope this clears up some of the confusion people have regarding the names of the issues.


With 15 out of 19 data points available for this estimate, I think that this is quite reasonably accurate. I would hazard a guess of 1.05 / 1.05 / 1.82 / 2.15 as the final yields.

One thing that you might notice is that we have the average rate of the 1 year being higher than the 2 year. At Central Banking 101 classes, they will tell you that this should NEVER happen (since yield inversion signals a broken / breaking credit market). So, just like how we saw the Dec issue be manually adjusted to limit the 1 year yield against the 2 year yield, I am expecting the exact same kind of market manipulation for the Mar 2016 issue yields.

This upcoming issue looks set to be the weakest SSB issue since it has started. The current month's issue is definitely better than next month's issue, if your decision were really that simple and binary.

I would not be applying for this month's issue, and I'm 99% I will not be applying for next month's one as well.

4 comments:

  1. The rates are not attractive at all. I have not applied for any. I am still waiting for a similar rate as Nov 2015 to appear.
    Thank you.

    ReplyDelete
  2. Same here, I think the real reason SSBs haven't done well is that the rates have just been too low.

    ReplyDelete
  3. I am going in simply because my equity warchest is not earning much interest in normal bank account but I will spread out the placement into SSB so as not to end up with the worst month in a lump sum. The flexibility of getting out with one month's notice when I need to make an equity investment makes it worthwhile.

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  4. Hi guys, with other options like CIMB Fast/Star Saver and also the recent Citi MaxiGain account, I think that are many good "cash"-like places to park your money. It's seems like the best risk-free rates on cash we can get is about 2%, so any returns higher would require some risk-taking on the investors part.

    Personally, I wouldn't mind to assume some credit risk if I am compensated with better returns.

    ReplyDelete

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