Interest rates are falling. Apply for the SSB now or wait for the next one?

What happened?

Many investors noticed that interest rates have been falling in recent weeks.

The cut-off yield for the latest 6-month T-bill declined slightly to 3.73%, after the Fed signaled that there may be three rate cuts next year. 

This led some investors to ask us if we should subscribe to the current issuance of the Singapore Savings Bond (SSB) or wait for the next one.

Earlier, we shared that the latest SSB (SBJAN24 GX24010F) offers a 10-year average interest rate of 3.07%.

Compared to the T-bills and fixed deposits, the SSB allows us to lock in a high interest rate for an extended duration of up to 10 years, while retaining the flexibility to redeem anytime. 

As such, we decided to take a look at what the indicators on what the projected interest rate for the next SSB might be.

This will allow us to understand if it is worthwhile to subscribe to the current SSB, or wait for the next SSB issuance. 

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

#1 – Current SSB offers 10-year average interest rate of 3.07%

Let us take a look at the interest rates offered by the latest SSB. 

If you hold on to the SSB for 1 year, you will receive an average return of 3.00%.

If you hold on to the SSB for 10 years, you will receive an average return of 3.07% per year.

As we can see from the chart below, the 10-year average return of 3.07% is lower than the rate offered by the previous SSB.

However, it remains above the historical average interest rate offered by the SSB.

#2 – SSB interest rate projected to decline further

With the fall in interest rates, how much will the 10-year average return on the SSB fall in the next issuance? 

As a background, SSB interest rates are linked to the yields of Singapore Government Securities (SGS). If you are familiar with T-bills, SGS are also Singapore government bonds but with 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 fallen sharply in December.

The fall in government bond yield came after the US Federal Reserve signaled that there may be rate cuts in the coming year. 

As of 22 December 2023, the closing yield on the 10-year Singapore government bond yield has fallen to 2.72% from close to 3.0% at the start of the month.

The decline in the 10-year Singapore government bond yield may mean that the 10-year average return for the next SSB will be lower than the current one. 

Based on our SSB interest rate projection as of 23 December 2023, the average return over 10 years for the next SSB may be at 2.83%. 

This is calculated using the average of the closing yield of the 10-year government bond so far in December, and assuming that the yield will remain at 2.72% for the remaining working days of the month. 

#3 – Allotment might be higher than previous issuance

With the potential decline in interest rate for the next SSB, you might be wondering if it makes sense to just put all our target allocation of the SSB into the current SSB.

Firstly, the maximum amount of SSBs an individual can hold is S$200,000. 

In addition, we have seen an increase in demand for SSBs in recent months, which has led to a lower allocation limit for SSBs. 

The total amount of applications rose to S$1.9 billion in the December issuance of the SSB, representing the highest demand for SSBs so far this year. 

With only S$1.0 billion of SSBs issued, the maximum allotment of the SSB in the previous issuance was up to S$20,5000 per individual. 

However, demand for the latest SSB issuance might be lower than the previous issuance with the decline in interest rates. 

In the September issuance of the SSB which offered a 10-year average return of 3.06%, there were only S$523 million of applications for the SSB. 

This led to full allocation for all eligible applications in the SSB issuance. 

What would Beansprout do? 

The latest issuance of the SSB offers a decent 10-year average return of 3.07%. While the interest rate has fallen compared to the previous issuance, it remains high compared to the historical average. 

With the 10-year average return on the next SSB expected to decline compared to the current SSB, it may still be worthwhile considering the current SSB for investors who are looking to secure the high interest rates. 

However, 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. 

You can continue to check the SSB interest rate projection to find out how the projected interest rate may change in the coming days.  

Also, we can consider swapping previous issuances of your SSB with the current SSB to earn a potentially higher interest. 

Check out our swap calculator to find out if it may be worthwhile to be doing so. 

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 6-month T-bill which offers a cut-off yield of 3.73% in the latest auction.

Alternatively, the best 12-month fixed deposit rate also remains fairly high at 3.60%. 

Applications for the latest SSB close at 9pm on 26 December (Tuesday). 

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

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