Singapore Savings Bonds – A quick note

This is a follow-up to my blog post dated 31 March 2015. The Monetary Authority of Singapore (MAS) announced additional details of Singapore Savings Bonds (SSB).

SSB will be issued monthly for at least five years. The government plans to issue between $2 billion and $4 billion of these bonds this year.

Each application can be as little as $500 while the maximum is $50,000. At any one time, an individual can hold $100,000 of the bonds, which has a 10-year term. Interest payment to investors (holding bonds to maturity) will match the average 10-year Singapore Government Securities yield, which has been between 2% and 3% per year.

Let’s work out the possible total SSB to be issued after Year 5 = $4 billion x 5 years = $20 billion (or lesser depending on circumstances faced by MAS over the 5-year period).

$20 billion removed from the financial markets and parked with MAS is substantial. MAS has to take this amount and invest for returns that are higher than the 2 to 3 per cent interest payout to holders of SSB in order not to lose on this scheme.

As a means of comparing the relative size of $20 billion SSB, this amount is about 20% of total MAS Bills as at 31 March 2015 ($97.2 billion). This is not a small amount. (Of course, MAS can issue SSB at much lower quantum than $20 billion.)

What does this mean to the financial markets? Investors would possibly favour SSB over fixed deposits with the banks. That is one. Some risk-adverse investors may withdraw from investing in equities, commodities, corporate bonds, unit trusts, etc (up to a sum invested in SSB). That is two.

Applications for the first issue of SSB open on 1 September and close on 25 September. Look out for more information when September comes.

Copyright © 2015, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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