In the past, there was not many good financial bond products offered to the common man. Almost all of the government and corporate requires a minimum investment of $250,000 and above which is quite captial intensive for the retail investors. However, in 2015, it all changed when the SG government started introducing Singapore Saving Bonds(SSB).
What is Singapore Savings Bonds?
SSB is a 10-year bond program where the SG government borrows money from you, pays you coupons/interests at regular intervals and returns the money once the bond duration has been reached. In this program, SSBs are issued monthly until 2020 and an individual can sign up to $50,000 per issuance, $200,000 for the entire program. If you decide to invest, you can at a minimum of $500 and increase the amount in multiples of $500.
What makes SSB special as compared to the rest?
Firstly, SSB has this neat feature called "step up coupons" where the interest rate on your bond continues to increase each passing year. The SSB interest rate for each year is referenced to the interest rate yield on SGS bond respectively (first year interest rate is pegged to the 1 year SGS bond, second year for 2 years SGS bonds all the way till the 10th). Furthermore, SSB allows redemption at any point through the program without any penalty which is great as it makes itself very liquid. In regards to the "step-up coupons", it incentivised investors to keep the bonds till the redemption year but otherwise there's no punishments if you redeem it early. Lastly, it also capital guaranteed which means you will not lose your principal amount as the borrower of your money is the Singapore government who has a triple AAA credit rating and extremely low chance of defaulting.
What I plan to do with SSB and other bonds in my blog?
As companies try to make bond more accessible to the general public, I will do my upmost best to give my personal take on any new bonds that will be arriving to the market. When the new bond arrives, I will be comparing them to existing bonds and other similar risk level assets available on the market. Also if it is a series of bonds like SSB then I will post an introduction to that bond with a review of the first issuance and subsequently just the review alone with the link to the introduction post. Lastly, a star rating system will also be created to rate the new bonds as an illustration to my preferences.
Singapore Saving Bonds for May
As COVID-19 continues spread throughout the world, the FED had decided to cut interest rate down to 0.25% in order to mitigate the damage caused by COVID-19 on her economy. Since the Monetary Authority of Singapore(MAS) takes it cues from the FED, this cut has drastically decrease the interest yield offered on all types of SGS bonds and consequently, the SSB itself. Hence, the SSB interest rates for the past few months have not been too appetizing...
So, according to the table, if you were to placed $1000 for this month issuance and held for the next 10 years, you will receive $105 for each year.
In my view, I would highly not recommend placing money in SSB right now because of mainly 2 reasons;
1) The low interest rate offered
Although an interest rate of 0.57% is higher as compared to the interest rate offered for fixed deposit, it's relatively minuscule as compared to other financial instruments that offers higher returns with similar risks such as Standard Chartered Jumpstart account at 2%, Singlife at 2.5% (without any salary commitment) or even the various programs offered by the banks like DBS Multiplier (requires salary commitments).
2) Inability to sell in the SGX market
One small disadvantage of the SSB is, unlike its SGS bonds counterparts, you will not able to sell this on secondary market in the SGX. Hence, if the MAS decides to lower interest rate further, you will not be able to sell your SSBs at a premium if you decide to use this instrument for short-term gains.
Overall, as of now, this month SSB does not serve any purpose in the long-term or in the short term due to its measly coupon rate and being a personal saving bond and unable to sell in SGX. I will be giving this issuance a 2 star rating as it has only the benefit of capital guaranteed going for it.
*This is my personal opinion, please do your own due diligence to fact check and form an opinion of your own*
