Monday, July 25, 2016

Singapore Savings Bond: Jul 2016 Review, Sep 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 July 2016 SSB, we actually see the take-up rate increase. Which makes some sense because any buyer of the June SSBs would be able to figure out with a high degree of certainty that the July issue would be better, and thus postpone their purchase of the June issue. We saw this behaviour with the Apr-May issue as well.


This month, there is no the yield curve inversion. The MAS rates continues to show strong levels of prediction to the actual SSB issue, confirming the relationship that we have identified.

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: Jul 2016 rates are used for the Sep 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: Jul 2016 applicants will receive the Sep 2016 issue). I hope this clears up some of the confusion people have regarding the names of the issues.


I would hazard a guess of 0.88 / 0.95 / 1.35 / 1.75 as the final yields.

This upcoming issue looks set to be worst ever SSB issue on record. 10 year yields have collapsed from 2.78% by almost 100bps to settle at next month's predicted value of 1.7x%, in a short span of just 9 months! 5 year yields have also collapsed 80bps, from 2.16% to 1.3x%.

I'm not trying to predict the future, but lower long term yields is a sign that investors are more gloomy and dim about the future, hence the willingness to accept lower and lower rates for such a long time. Holding next month's issue for 10 years is the same as holding last year's Nov issue for just 7 years. That difference of 9 months is equal to 3 years of returns!

This month's issue is definitely better than the next month's issue, if your decision were really that simple and binary. So if you really want to buy some SSBs and are not sure when, it would be advisable to lock in your order today as opposed to waiting for next month's issue. But in all honesty, the differences would be very minor.

Tomorrow is the last day of applications, which closes at 9pm. It can be done through ATMs or iBanking.

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.

If you really are looking for a low-risk savings-type of investment, you may want to consider the 5 year China Life Endowment Plan that has guaranteed 2.25% returns. It's almost a whopping 90bps of difference. Of course, you ought to be very very clear about your liquidity requirements before you purchase any product that has inflexible withdrawal terms. In the end of 5 years, the returns that you would get would be almost close to 70% higher than with the SSB.

As much as I like the SSB, there are pros and cons to it, and the obvious con right now is its extremely low yield.

2 comments:

  1. Perhaps they shouldn't even bother issuing if the yield is so low...

    ReplyDelete
    Replies
    1. Hi Anon,

      No choice, they will continue to issue. It looks like the SSB is just going to end up as one of the lesser known financial tools that the G has given us.

      Like CPF cash top-ups and the SRS account.

      Delete

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