Thursday, 3 September 2015

Singapore Savings Bonds: First issue open for application

$1.2 billion worth of bonds available with promise of 2.63% average annual return over 10 years
By Wong Wei Han, The Straits Times, 2 Sep 2015

The first issue of Singapore Savings Bonds (SSB) opened for application yesterday with an average annual return of 2.63 per cent promised for those who hold the instrument for the full 10-year tenor.

There are $1.2 billion worth of bonds in the first issue, which closes for applications at 9pm on Sept 25. Successful applicants will be notified by letter after the allotment results are announced on Sept 28.

The interest rate - or rate of return - of the first issue starts at 0.96 per cent for the first year, rising to 1.09 per cent in the second year and 1.93 per cent in the third. This gives an average annual return of 1.32 per cent over three years.

The rates will be stepped up over subsequent years, reaching 3.7 per cent for the tenth year, giving an average annual return of 2.63 per cent.

So the longer the bonds are held, the better the return.

A $10,000 investment, for example, will give a return of $96 in the first year, a further $109 in the second year, and so on. If you hold this amount for the 10 years, you will reap a total return of $2,691.

Returns are paid out every April and October.

The first issue rates were calculated from the average Singapore Government Securities interest rates over August, said the Monetary Authority of Singapore (MAS) yesterday.

Mr Wong Sui Jau, Fundsupermart retirement planning ambassador, told The Straits Times: "These rates are actually quite competitive compared with the one-year and 10-year government bonds. But more importantly, for retail investors, they offer the flexibility to redeem early without penalty."

Unlike regular bonds, the Singapore Savings Bonds offer accrued returns to investors who redeem the bonds ahead of the full 10-year tenor. As the bonds are not tradable, they are also not affected by market fluctuations and are hence capital-guaranteed.

People can apply in multiples of $500 up to a maximum of $50,000 in a single issue, but they will need an individual Central Depository securities account complete with direct crediting service.

Applications can be lodged through ATMs of DBS, POSB, OCBC and UOB, or through Internet banking services of DBS and POSB. More banks may be included as the programme progresses.

The MAS plans to issue a total of $2 billion to $4 billion of Singapore Savings Bonds this year in three tranches. They will then be issued monthly for at least the next five years, so there is no need to rush.

* Applications worth $413m for first issue of Savings Bonds
By Wong Wei Han, The Straits Times, 29 Sep 2015

The first issue of Singapore Savings Bonds has sold about one-third of the maximum sum that could have been rolled out.

The Monetary Authority of Singapore (MAS) said yesterday it had received applications worth $413.16 million from 19,505 individuals for the first issue.

Given that the applied amount is below the $1.2 billion limit, all applicants will get all the bonds they applied for, subject to a limit of $50,000 per person.

Responding to queries, an MAS spokesman said the $1.2 billion issuance size is a limit, not a target. "We are encouraged by the response to the first Savings Bonds issue, as our goal is to make available to the public a safe and flexible long-term instrument for savings and investment. As this is the first issuance, there are potential Savings Bonds investors who are still learning about the product or considering whether this is something useful to them."

However, research house Voyage Research chief executive Roger Tan expected a stronger take-up.

"It's definitely undersubscribed. Instead of one-third, you would expect it to be at least 70 per cent subscribed. I think investors may be concerned about the interest rate uncertainties and are waiting to see where the rates go before they jump in," he said.

In general, bond yields are directly correlated to interest rates. As interest rates rise, bond prices tend to fall to ensure the bond yield is in line with prevailing interest rates.

The delayed timing of US Federal Reserve rate hikes has created uncertainties for investment assets, including bonds, in recent months.

But Fundsupermart retirement planning ambassador Wong Sui Jau was not disappointed at the take-up.

"I think MAS doesn't intend for Savings Bonds to be oversubscribed. That's why it set up the individual investment cap. Without the cap, you will probably see major players pushing the application amount well over $1.2 billion.

"The product will take time to catch on, due also to unfamiliarity with the subscription process. But eventually, I see this becoming a popular instrument for retail investors, who will like the bonds' security as they are not tradable, and also flexibility in redemption."

Mr Tan added: "The product has close to zero default risk, so it's attractive not so much as a singular product, but a part to build a risk-free portfolio with."

Unveiled earlier this month, the first-issue Savings Bonds promise an average yield of 2.63 per cent a year if an investor holds the bonds to their 10-year maturity.

Investors can redeem the bonds ahead of maturity and get accrued returns for the period they hold them. The returns are "stepped up", rising the longer the bonds are held.

Applicants for the first-issue bonds will get a letter from the Central Depository in three to five business days informing them of the bond amount allotted to them. The bonds will then be issued formally on Oct 1. Also on Oct 1, MAS will announce details of the second issue. The central bank is committed to issuing Singapore Savings Bonds monthly for at least five years.

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