With the current trend in SGS yields, it is possible that this month’s Singapore Savings Bonds might be the final chance to buy SSBs above 3% yield.
I’ve also been getting quite a few questions on expected yields for the next 6 month T-Bills auction on 26 April.
So I wanted to take some time out to discuss both issues.
Last chance to buy Singapore Savings Bonds above 3.0% yield?
Here are the interest rates on the May Singapore Savings Bonds.
You’re looking at 3.03% for the first 7 years.
Stepping up to 3.07% over 10 years.
Next month’s Singapore Savings Bonds unlikely to be as good
Note that if you look at latest market pricing, the interest rates on the next Singapore Savings Bonds are unlikely to be as good.
SGS yields for the month of April have averaged about 2.82%.
So unless things change drastically next week you’re going to see the next round of Singapore Savings Bonds yield about 2.8% over 10 years.
And given how the yield curve is inverted at the moment (note that Singapore Savings Bonds cannot have a 1 year interest rate higher than the 10 year).
This means you’re probably going to see 1 – 5 year interest rates at around 2.8% for the next Singapore Savings Bonds.
Or in plain English – next month’s Singapore Savings Bonds are likely to be worse than this month’s. Both at the short and long end.
If you’ve been wanting to pick up some Singapore Savings Bonds, this might be your last chance to pick them up at above 3% this cycle.
Market is pricing in interest rate cuts in 2023
For the record – Here’s what the market is pricing in.
1 more interest rate hike, and then the Feds to pause until late 2023 when interest rates get cut (2 rate cuts in 2023).
I think the market pricing is wrong on this
As shared previously, I just think the market pricing is wrong on this.
I agree that 1 more rate hike and we get a Fed “Pause”.
But I think the timing of the interest rate cuts priced in the market is too aggressive.
When exactly the Feds cut is the million dollar question – to which I have no easy answers to.
But I’ll be willing to bet that it is going to be later than what the market is pricing in above.
Will Singapore Savings Bonds go back up above 3.0% this year?
But investing is about risk-reward.
Will Singapore Savings Bonds interest rates go back up above 3.0% this year?
Don’t know the answer – it’s definitely possible.
But I see absolutely no need to make this bet.
Are Singapore Savings Bonds a good hedge against declining interest rates?
As a reminder, the key features of Singapore Savings Bonds are:
- Risk free (Backed by the Singapore Government)
- Can be held for up to 10 years
- Can be redeemed any time to get principal back + accrued interest
If I buy this month’s Singapore Savings Bonds and interest rates stay high (or go higher), I can redeem any time.
But if the market is right that interest rates are slashed in 2023, I’ll be glad that I locked in these >3% interest rates.
So for those who have spare cash and want the option to hold up to 10 years.
I think it really doesn’t hurt to apply for this month’s Singapore Savings Bonds.
Feels like a heads I win, tails you lose kind of scenario.
What’s the catch with Singapore Savings Bonds?
The only real cost here is the opportunity cost of capital – 3.03% for the first year vs 3.90% on a Fixed Deposit.
But nobody is saying to put all your cash into Singapore Savings Bonds – just the right amount to spread out your interest rate risk.
You can still buy Fixed Deposit and T-Bills for the higher interest rates, and keep some Singapore Savings Bonds in case interest rates get cut in 2023/2024.
Personally I’ve already maxxed out my $200,000 Singapore Savings Bonds allotment, I think they’re a good complement to Fixed Deposit and T-Bills.
Timeline to apply / redeem Singapore Savings Bonds
If you’re interested – deadline to apply is 9pm on Tuesday, 25 April.
Next 6 month T-Bill Auction on 26 April 2023 – What is the expected yield?
For those who want to maximise short term interest rates, there is another 6 month T-Bill auction coming up on 26 April.
Quite a few of you have asked for expected yields, which we’ll discuss here.
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12 week MAS Bills – 3.81%
The institutional only 12-week MAS Bills trade at 3.81% on the market, giving you an idea of market pricing without retail demand.
6-month T-Bills – 3.73%
While the 6-month T-Bills trade at 3.73% on the open market.
Recent T-Bill auctions have consistently come in below market prices
That said, recent T-Bill yields have been on a clear downtrend.
And have consistently come in below market pricing.
If that holds true here, the next T-Bills might come in below 3.73 – 3.74%.
Estimated yield of 6 month T-Bills – 3.65% – 3.75% (26 April 2023)
Gun to my head – I think an estimated range of 3.65% – 3.75% for the 26 April 2023 6-month T-Bills.
But as always, I encourage investors to submit a competitive bid, to protect yourself from any freak results (where yields come in much lower than expected).
T-Bills not so attractive for cash investors, but still attractive for CPF-OA investors
As covered earlier today, you can get 3.90% on a fixed deposit for 6 or 12 months, which to me is just the better option for cash investors (vs T-Bills).
CPF-OA investors will still want to buy the T-Bills though, as this should still come in higher than CPF-OA’s 2.5%.
Here are the numbers assuming you buy $100,000 worth of T-Bills.
Even at 3.65% you’re making $336 extra on the interest, which is a whopping 25% increase in interest earned.
This round of T-Bills not a good buy for CPF-OA buyers – because of the maturity date?
That being said, CPF-OA buyer should note that the auction date is 26 April.
Which means the moneys are deducted from your CPF-OA 1 day after the auction date (ie. 27 April).
While the maturity date is 31 October 2023, which gives you no time to transfer it back to CPF-OA / roll over into new T-Bills the same month.
Or in plain English – if you buy this round of T-Bills, you will lose the April – November 2023 CPF-OA interest (8 months interest).
It’s not a problem if you plan to roll over into new T-Bills in November (because in that case you would have lost the Nov CPF-OA interest no matter what).
But if you plan to transfer back into CPF-OA in November, this will be a problem because you’ll lose the full month of April and November CPF-OA interest (because of the maturity date being so close to the end of the month).
So yeah… do note this if you are buying with CPF-OA.
This article is written on 21 April 2023 and will not be updated going forward.
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