Singapore Savings Bond: Aug, Sep 2016 Review, Nov 2016 Preview

All right, I missed the previous month because it was just a horrible issue and I don’t think people bothered to apply for it, but I’m updating for this month because I’ve just enough time to squeeze in this post.

First up is the update of the subscription of the previous issues. 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.

The Aug 2016 SSB came in at 9% which is within expectations. However, the Sep 2016 SSB had a drastic drop to just 5.6% uptake. Why? It’s a no brainer, the yield for the Sep issue is horribly low. For 10 years, you only get back returns of 1.75%. Looking at the yields of the Oct 2016, I wouldn’t be surprised if we punch in a final number for the fill rate to be closer to 5% than 9%.

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. I might stop showing this table in the future unless we have a month with a yield curve inversion, because of intervention is rather obvious when it happens. But when it doesn’t, it follows the relationship very well, with less than 1% margin of error for 83% of the time.

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: Sep 2016 rates are used for the Nov 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: Sep 2016 applicants will receive the Oct 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 0.78 / 0.82 / 1.30 / 1.79 as the final yields for the Nov issue.

This upcoming issue looks set to be one of the worst ever SSB issued on record. 10 year yields have collapsed from 2.78% in Nov 2015 by almost 100bps in just a year! 5 year yields have also collapsed 80bps. However, the more interesting thing is that the 1 year yield will be pushing under 0.8% for the first time ever.

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.

This month’s issue and last month’s issue are both bad, but next month’s issue will be worse the entire front end. 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, both issues are horrible and you’re probably better off rolling fixed deposits.

Today 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 95bps 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. At the end of 5 years, the returns that you would get would be almost close to 75% higher than with the SSB. Their product closes 30 Nov or whenever it gets full, so just an FYI if you’re looking for some pick up and don’t have liquidity issues.

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. It is likely to persist for a while. Let’s all spend a moment to thank global central bankers for punishing savers and rewarding the gamblers in the casinos.

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