SSB allotment surges to up to $173k per person as interest rates fall

What happened?

It seems that many investors are focused on T-bills, savings and fixed deposit accounts, such that the Singapore Savings Bond (SSB) has been less talked about these days. 

Hence, it is not a surprise that demand for SSBs fell sharply for the January issuance (SBJAN23 GX23010Z).

Applicants who applied for S$172,500 or lower were fully allotted, subject to individual allotment limits. 

Applicants who applied for S$173,000 or higher were allotted either S$172,500 or S$173,000. 

About 95.93% of these applicants were selected at random and allotted S$173,000.

What we learnt from the SSB allotment results

#1 – Investor interest in SSB fell sharply

There was S$910 million of applications for the January issuance of the SSB (SBJAN23 GX23010Z).

This was way lower than the S$1.7 billion of applications for the December issuance of the SSB (SBDEC22 GX22120S).

In fact, the amount of applications this time was the lowest in the past eight months. The previous time where we see applications below S$1 billion was for the June issuance of the SSB (SBJUN22 GX22060F) where the 10-year interest rate is at 2.53%.

This led to the higher allotments of up to S$173,000, compared to the previous month’s allotment of S$14,500. 

#2 – Fall in interest rate greatly reduced demand for SSBs

The lower subscriptions for the January issuance compared to the December issuance might be due to the fall in interest rate where you will receive an interest rate of 2.95% for holding the Jan 2023 SSB for one year as compared to 3.26% for the previous issuance.

You will receive an average interest rate of 3.26% for holding the January SSB for 10 years. This is lower compared to last month’s issuance average of 3.47% per annum.

SSB interest rates – January 2023 

This would be slightly lower than the interest rates in the December issuance. 

SSB interest rates – December 2022 

#3 – Demand might have moved to T-bill

Some of the investor interest in the SSB might have moved towards the T-bill. 

This might have happened after the yield on the 6-month T-bill during the auction on 8 December rose to 4.4% per annum. 

Across the two T-bill auctions in December, total bids including competitive and non-competitive bids reached close to S$21.1 billion.

December is also seen to be seasonally weaker for demand, as Singaporeans might be away for the year end holidays. 

What would Beansprout do?

It seems that investor interest in the SSB has weakened significantly after the 1-year yield fell below 3%. 

Investor demand might also have been diverted to the T-bill, where the yield of the 6-month T-bill was higher than 4% per annum in recent auctions.

As we shared in our lesson on reinvestment risk, we should also look at the time period of our investment when assessing our options in the market. 

The SSB allows you to invest for up to 10 years, while allowing flexible redemption such that you can choose to get your money back in any given month. This is something that the T-bill is not able to offer. 

As such, let’s not forget that the SSB also offers a simple way to generate safe returns across longer time horizons.