SSB rates may rise with higher T-bill yield. Wait for next SSB?

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Bonds

By Gerald Wong, CFA • 21 Apr 2024 • 0 min read

The 10-year average return on the next SSB may rise to 3.31%, mirroring the elevated T-bill yields.

ssb interest rate projection t-bill yield april 2024

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What happened?

It isn’t often that I see discussions about the Singapore Savings Bond (SSB) these days.

Hence, I was surprised to see someone in the Beansprout Telegram community asking about the projected interest rate for the next SSB.  

With the increase in the 1-year T-bill yield recently, some investors may be hoping that the next SSB will offer a high interest rate too. 

Compared to the T-bills and fixed deposits, the SSB allows us to lock in the interest rate for an extended duration of up to 10 years.

At the same time, the SSB offers us the flexibility to redeem anytime. 

I decided to take a look at the latest SSB interest rate projection to decide if we should subscribe to the current SSB or wait for the next one.

ssb interest rate april 2024
Source: MAS

 

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Should you apply for SSB now or wait for the next one?

#1 – Current SSB offers 10-year average interest rate of 3.06%

I recently wrote about the interest rates offered by the current issuance of the SSB.

If you hold on to the SSB for 1 year, you will receive an average return of 2.99%.

If you hold on to the SSB for 10 years, you will receive an average return of 3.06% per year.

ssb singapore savings bond interest rate april 2024
Source: MAS

The 10-year average return of 3.06% is higher than the rate of 3.04% offered by the previous SSB. 

It is also higher than the average interest rate offered by the SSB historically.

#2 – SSB interest rate projected to rise to above 3.3%

If you are new to the SSB, it might be worth knowing that SSB interest rates are linked to the yields of Singapore Government Securities (SGS)

Like T-bills, SGS are also Singapore government bonds. However, they have a longer maturity of 2 years to 30 years. 

The interest rates on the SSB are linked to the daily average SGS yields as published by MAS in the previous month.

As an investor in the SSB, your average annual compounded return over any period (eg 10 years) should broadly correspond to the SGS yield of the same holding period (eg 10 year SGS) with a one-month lag.

In other words, the average 10-year return on the next SSB would largely correspond to the yield on the 10-year Singapore government bond or SGS this month.

As seen in the chart below, the 10-year Singapore government bond yield has risen sharply in April, as persistent inflation has moderated investors’ expectations that the US Federal Reserve will cut interest rates soon. 

image.png
Source: Tradingview

 

As of 19 April 2024, the closing yield on the 10-year Singapore government bond yield was at 3.36%, compared to just about 3.1% at the start of the month. 

image.png
Source: MAS

 

As the 10-year Singapore government bond yield has increased sharply in April, this may mean that the 10-year average return for the next SSB may be higher compared to the current one.. 

Based on our SSB interest rate projection as of 21 April 2024, the average return over 10 years for the next SSB may be at 3.31%.

This is calculated using the average of the closing yield of the 10-year government bond so far in April, and assuming that the yield will remain at 3.36% for the remaining working days of the month. 

image.png
Source: Beansprout projection as of 21 April 2024

#3 – Demand for SSB may surge in next issuance

The demand for SSBs has remained low so far even with the increase in interest rates in recent months.

This may be because the 10-year average interest rate on the SSB remains below the T-bill and fixed deposit. 

In the previous issuance of the SSB, there were only S$301 million of applications. 

As this was below the issuance size of S$900 million, all eligible applicants within their individual allotment limits were able to get full allocation

ssb singapore savings bond applications april 2024

It might be worth noting that with the projected increase in interest rates, demand for the next SSB may rise sharply. 

In the November 2023 issuance of the SSB where the 10-year average interest rate of the SSB was 3.32%, there was S$1.2 billion of applications for the SSB. The maximum allotment of the SSB was at S$47,500. 

In the November 2022 issuance of the SSB where the 10-year average interest rate of the SSB was 3.21%, there was S$2.2 billion of applications for the SSB. The maximum allotment of the SSB was at S$10,500. 

What would Beansprout do?

The latest issuance of the SSB offers a 10-year average return of 3.06%, above the return offered by the previous SSB. 

The 10-year average return on the next SSB is projected to rise to 3.31%, as the 10-year Singapore government bond yield has gone up sharply in April.

As such, I may consider applying for the next SSB rather than the current one to secure the higher 10-year average interest rates. 

However, as we have seen in previous auctions, I may not get full allocation of the SSB in issuances with very high demand. 

To secure the 10-year average interest rate of above 3% for large sums of money above S$10,000, we can build a bond ladder to smooth out the interest earned on the SSB over time, especially if we are uncertain about the allocation of SSB we would receive as demand increases. 

The actual interest rates for the next SSB may still differ from the current projections, as the Singapore government bond yield may still fluctuate in the remaining days of the month. 

If you are wondering if it might be worthwhile to swap previous issuances of SSB with the current SSB to earn a potentially higher interest, check out our swap calculator.

If you are looking to earn a higher interest rate in the short term compared to the SSB, then it might be worth considering the upcoming 6-month Singapore T-bill auction.

To find out how the yield on the SSB compare with other assets such as FD and T-bill, check out our Compare Yield Tool

ssb singapore savings bond applications closing date april 2024
Source: MAS

Applications for the latest SSB close at 9pm on 25 April (Thursday). You can receive a email reminder if you are afraid of missing out on the application deadline.

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Sign up to receive a free email reminder before applications for the latest SSB close.

Learn more about SSBs and how to apply for SSBs using our comprehensive SSB guide

Join the Beansprout Telegram group for the latest insights on Singapore stocks, REITs, bonds and ETFs.

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