Singapore Savings Bonds (4) – Second Tranche, higher interest rates

What a difference one month made. MAS launched the second tranche of the Singapore Savings Bonds (SSB) yesterday.

The interest schedule for this second tranche is different from the first tranche. Interest rates are higher in this latest tranche.

The actual interest payment for each year is shown below. In year 1, the interest rate is 1.18%. This is higher than the first tranche of SSB by 0.22 percentage point.

Year Interest rate (p.a) %
1st tranche 2nd tranche Difference
1 0.96 1.18 0.22
2 1.09 1.20 0.11
3 1.93 2.06 0.13
4 2.93 3.10 0.17
5 3.25 3.40 0.15
6 3.25 3.40 0.15
7 3.25 3.40 0.15
8 3.25 3.40 0.15
9 3.3 3.44 0.14
10 3.7 3.83 0.13

If a person does not hold the bond to maturity and terminate it after year 1, after year 2, after year 3, … the average rates of return per year are shown in the table below provided by MAS.

Year Average rate of return (p.a) % – compounded
1st tranche 2nd tranche Difference
1 0.96 1.18 0.22
2 1.02 1.19 0.17
3 1.32 1.48 0.16
4 1.71 1.87 0.16
5 2.01 2.16 0.15
6 2.2 2.35 0.15
7 2.34 2.49 0.15
8 2.44 2.59 0.15
9 2.53 2.68 0.15
10 2.63 2.78 0.15

Again the average return is higher in tranche 2 against tranche 1. The difference is 0.22 percentage point in Year 1 and then it is about 0.15 – 0.17 percentage point for all the other years.

The average rate of return of this bond if held to maturity (10 years later) is 2.78% per annum (first tranche: 2.63% per year).

Now I see that MAS is willing to pay higher interest in Year 1 compared to the inaugural first tranche of SSB. We are talking of mere one month gap between tranche 1 and tranche 2. Is there a change of heart by MAS after the lukewarm reception to the first tranche?

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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