Thursday, 23 July 2015

Singapore Savings Bonds: Applications for the first issue open 1 September 2015

Apply for Singapore Savings Bonds from September
By Lorna Tan, Senior Correspondent, The Straits Times, 22 Jul 2015

Investors looking for a flexible, low-risk option can apply for the long-awaited Singapore Savings Bonds from September.

Applications for the first issue open on Sept 1 and close on Sept 25. Successful applicants will get the bonds credited into their central depository (CDP) accounts on Oct 1.

A new Savings Bond will be issued monthly for at least five years, so there is no need to rush for the first issuance, the Monetary Authority of Singapore (MAS) said yesterday. The Government plans to issue between $2 billion and $4 billion of these bonds this year.

A key feature of the bonds is that they are principal-guaranteed by the Government.

Investors enjoy flexibility in that they can redeem their bonds - partially or fully - in any given month before maturity with no penalty charged for early exit. Interest is paid half-yearly and is on a step-up basis to encourage investors to hold the bond for 10 years.

The return for holding a bond until maturity will match the average 10-year Singapore Government Securities yield, which has been between 2 per cent and 3 per cent.

Those applying for the bonds must have an account with the participating banks - DBS/POSB, OCBC and United Overseas Bank - and an individual CDP account, where the direct crediting service is enabled.

Application and redemption of the Savings Bonds are done through the ATM. DBS/POSB customers can also use Internet banking. There is a $2 non-refundable transaction fee for each application and redemption request.

Each application can be for as little as $500, while the maximum is $50,000. At any one time, an individual can hold $100,000 of the bonds, which have a 10-year term.

The MAS will provide details of the first October Savings Bond issue, such as the interest rate schedule, on its website ( after 4.30pm on Sept 1. The details will also be published in newspapers the next day.

Investor Henry Lim, 56, said he plans to set aside $50,000 in Savings Bonds as they are safe and the returns are "decent". "It is almost like having cash at hand as I can redeem the bonds for cash with no penalty, if the need arises," he said.

Apart from the website, there is a hotline on 6221-3682.

Singapore Savings Bonds' appeal
By Lorna Tan, Senior Correspondent, The Straits Times, 23 Jul 2015

Much excitement surrounds the arrival of Singapore Savings Bonds - a flexible, low-cost, fully government-backed investment option which opens for application from Sept 1.

But let's be clear about one thing: These bonds are not for everyone.

Younger, more aggressive and savvy investors may turn up their noses at the interest rates offered. The bonds are set to match the average yield on 10-year Singapore Government Securities (SGS): 2 per cent to 3 per cent a year.

The more ambitious would want their money to work harder for them and may prefer riskier instruments like shares, currencies or commodities.

But there is a great deal of reasons to recommend Singapore Savings Bonds to ordinary investors seeking significantly more than rock-bottom interest rates on bank savings accounts, with zero risk. All you need to start is $500, and one major attraction is that you can get your investment back in any month, with accrued interest, and without any penalty.

The first bonds will be issued on Oct 1, and every month after that for at least five years. Interest on the bonds will be credited every six months and the rate of return will be stepped up each year as an incentive for holders to stay on for the full 10-year term.

Investors can invest up to $50,000 in an issue and hold up to $100,000 of the bonds at a time.

These features put the Singapore Savings Bonds in a unique class, with more appeal than conventional savings accounts, fixed deposits and the long-term, safe SGS. They will fill a significant market gap at the lower end of the risk spectrum for cash investments.

Investors who follow the sound principle of setting aside three to six months of emergency cash can then park these funds in Singapore Savings Bonds for near-emergency and short-term needs, as they are so readily accessible. And for conservative investors with all their savings sitting idle in a bank account, the bonds are most certainly an attractive alternative.

So understand your objectives, do your homework and make an informed choice.

Competition from upcoming Singapore Savings Bonds? Banks here are now offering higher fixed deposit rates:
Posted by The Straits Times on Wednesday, July 22, 2015

Singapore Savings Bonds: Good intent, bad timing, say analysts
Banks, economists fear move will push interest rates up, suck cash from anaemic economy
TODAY, 23 Jul 2015

Singapore’s plan to launch a savings bond to encourage long-term retail savings is unsettling domestic banks and economists who fear this bond will push interest rates up and suck cash out from an already anaemic economy.

The Singapore Savings Bonds (SSB), which will begin selling in October, will have a term of 10 years. It will offer the same yields as government bonds or 10 times the returns on bank deposits, and can be redeemed without penalty at any point. Such a juicy proposition could cause a flight of cash from bank deposits into these bonds and force interest rates higher as banks compete to attract savers.

The government says it will issue a maximum of S$4 billion worth of bonds this year, which is still more than a fifth of deposit growth last year.

The timing of these bonds, which are aimed at meeting a long-felt need for long-term investment options in the low-yielding economy, couldn’t be worse. The economy contracted sharply in the second quarter as manufacturing slumped and is at risk of tipping into technical recession. Price pressures are subdued and expectations are building for the central bank to ease policy once again at a twice-yearly review in October.

“Launching a retail savings bond now is almost like reverse QE,” said Bank of America Merrill Lynch economist Chua Hak Bin referring to the unorthodox quantitative easing (QE) policies the United States and other major economies have pursued in the years since the 2007 financial crisis.

Mr Chua points to the already slowing deposit growth in the Singapore banking system, with just S$3.8 billion of deposits being added in the first five months of this year, just 20 per cent of the total growth last year. He suspects the government would invest the savings bond flows overseas. That would further pressure loan growth, by tightening available cash and triggering a rise in deposit rates, he said.

“So, the timing is not ideal. The economy has stagnated in the first half and this will worsen the situation,” Mr Chua said.

Citibank analysts expect that of a total S$559 billion of deposits in the banking system, 36 per cent are savings deposits held by households. If on average the MAS issued about S$6 billion worth of bonds each year, S$30 billion would flow from the deposit base into bonds over five years, they estimate.

The Monetary Authority of Singapore (MAS) has set a cap of S$100,000 on individual investments in the bond.

MAS managing director Ravi Menon played down fears the bonds will cannibalise bank deposits. “The savings bonds issuance numbers pale in significance compared to the total size of the banking deposits,” he said at a news conference on Tuesday.

Yet, there is little doubt the bonds will draw savers from banks. Government bonds yield about 0.95 per cent for one-year and 2.6 per cent for 10-years. Bank deposits fetch around 0.25 per cent for a year and just double that for 24 months. “The Singapore Savings Bond is bending the risk-reward paradigm in investors’ favour,” said Mr Zal Devitre, head of investments at Citibank Singapore.

Mr Devitre believes retail investors and consumers will be keen to buy the bonds, and yet thinks it is premature to be projecting the impact that will have on rates and banking system liquidity.


* Singapore Savings Bonds - how to get buy-in from investors
By James Chia and Lawrence Yong, Published The Straits Times, 24 Dec 2015

The first three Singapore Savings Bonds (SSBs) saw tepid subscription rates. The Monetary Authority of Singapore announced that $1.2 billion was available for each of the first three SSBs, but only $413 million worth of orders was placed for the first SSB, $259 million for the second and $41 million for the third.

Perhaps in view of this poor initial response, only $300 million was offered for the fourth SSB issue, with only up to $4 billion worth for the whole of next year.

We think the main reason for the poor market response is that many individual investors are not familiar with the concept of risk-adjusted returns and view SSBs as part of a total portfolio framework.

Without looking at risk-adjusted returns, SSB yields, which ranged from 2.44 to 2.78 per cent for the first three issues, are prima facie hardly attractive to individual Singapore investors more used to real estate investment trusts (Reits) with dividend yields ranging from 5 to 8 per cent.

Yet, comparing yield levels alone over-simplifies matters, as the products' risks have not been factored in. Reits' higher yields compensate investors for the higher risk of investing in real estate, a cyclical sector whose prices may fall drastically, like during the 2008/2009 Great Financial Crisis. Conversely, the SSBs' low yields reflect the virtually zero credit risk of lending money to the Singapore Government, a benefit of Singapore's sound fiscal position and AAA rating.

The SSBs' only downside is that they have no potential to rise in value, unlike typical bonds, whose prices rise as interest rates fall - but then again, investors are also unlikely to lose money on SSBs, since they can be redeemed before maturity without penalty.


From a total portfolio perspective, we should invest some part of our portfolios in instruments with higher expected returns that can beat inflation and grow our wealth over the long term.

Investors know this, and there is already active investing in higher-risk segments of the financial market such as stocks. Financial innovation is also taking place, and introducing expanded options to individual investors to construct their financial portfolios. For example, peer-to-business loans crowdsourced via the Internet can offer attractive fixed-yield returns to investors while providing much-needed financing to fuel the growth of local small and medium-sized enterprises.

Investors should, however, be aware that these financial instruments come with a higher risk, and it is ill-advised to invest an entire portfolio in risky assets.

Every portfolio also needs a "risk-free" portion - that is, we should invest some part of portfolios in lower-risk instruments like SSBs, which do not offer as high returns, but are safer and hold their value when stocks suffer losses in market downturns, which inevitably happen. If an investor is indifferent towards liquidity, the SSB is quintessentially the superior risk-adjusted product vis-a-vis bank deposits - here, the sovereign guarantee is totally explicit.

Providing such articulated terms of reference could help drive the adoption of SSBs generally, as the investor's risk-free asset. One should also remember the role of the Central Provident Fund, where one's savings are risk-free, yet earn a credible return of 2.5 to 6 per cent per annum.

Our financial education efforts need to get creative - mobile apps, financial games or engaging seminars to drive home the message that different financial instruments have different risks and return profiles. Hence, we should allocate our monies into different "pots" that invest in different financial instruments, to meet different objectives.

An illustration of a well-diversified portfolio is a garden cultivating different types of plants. Some grow quickly, have nice flowers, but require more water and maintenance (for example, stocks).

Others are less luxuriant, but require less maintenance and do not die as easily (for example, bonds). This avoids situations where a dry spell wipes out all the plants; the low-maintenance plants will still survive.

Our SSB publicity drive could also be better streamlined, and target the population for whom SSBs may be most appropriate - older investors who have a shorter investment horizon and for whom stocks are not the most suitable since, unlike younger investors, they do not have time on their side to withstand the stock market's volatility in a bid for the higher expected returns.

For such older investors, the "Pioneer Generation Package publicity approach" could be adopted, where "SSB Ambassadors" reach out to them and explain how SSBs are beneficial - they provide regular payouts, are safe, yet can be redeemed at any time with no penalty - and a good option for their spare cash that is not needed for daily expenditure. The ambassadors could then help the older investor with operational aspects, for example, opening his Central Depository account if necessary, and walking him step by step through the SSB application process.

In summary, SSBs are the closest that any investor can get to having a "free lunch", and should be considered by every individual investor as a risk-free asset. But given that they may be most suitable for older investors, the authorities could consider targeted efforts to help this important group access this "free lunch".

James Chia is co-founder of Innervative, a financial education games company.

Lawrence Yong is co-founder of MoolahSense, a peer-to-peer business financing platform.

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