Interest rates remain volatile. Worth waiting for the next SSB?

What happened?

Singapore Savings Bonds (SSBs) appear to have fallen out of favour with investors. with applications for the previous SSB falling to below S$1 billion. 

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, while retaining the flexibility to redeem anytime. 

We shared earlier that the latest SSB (SBFEB24 GX24020T) offers a 10-year average return of 2.81%, below the return of 3.07% in the previous issuance.

The cut-off yield for the latest 6-month Singapore T-bill also fell to 3.7% from 3.74% in the previous auction.  

For some investors who are worried that the SSB interest rate may fall further, we decided to find out what the projected interest rate for the next SSB might be.

This will allow us to understand if we should subscribe to the current SSB or wait for the next one.

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

#1 – Current SSB offers 10-year average interest rate of 2.81%

Firstly, let us find out what are 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 2.72%.

If you hold on to the SSB for 10 years, you will receive an average return of 2.81% per year.

From the chart below, the 10-year average return of 2.81% is lower than the rate offered by the previous SSB.

However, it continues to be above the historical average interest rate offered by the SSB.

#2 – SSB interest rate projected to rise slightly

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 rebounded slightly in January.

The rise in government bond yield came as investors moderated their expectations of an interest rate cut by the US Federal Reserve.

As of 19 January 2024, the closing yield on the 10-year Singapore government bond yield has rebounded to 2.97%, compared to about 2.7% at the start of the month.

The rebound in the 10-year Singapore government bond yield may mean that the 10-year average return for the next SSB might be higher than the current one.

Based on our SSB interest rate projection as of 20 January 2024, the average return over 10 years for the next SSB may be at 2.89%.

This is calculated using the average of the closing yield of the 10-year government bond so far in January, and assuming that the yield will remain at 2.97% for the remaining working days of the month. 

#3 – Allotment likely to remain high

We have seen a decline in demand for the SSB, with just total applications for the January issuance of the SSB falling to S$868 million from S$1.9 billion in the previous issuance.

All eligible applicants within their individual allotment limits were able to get full allocation for the previous SSB with the fall in demand.

With S$900 million of SSBs offered in the latest issuance, this may mean that investors might also be able to get their full allocation should demand stays the same or fall further. 

However, do note that the maximum amount of SSBs an individual can hold is S$200,000. 

What would Beansprout do? 

The latest issuance of the SSB offers a 10-year average return of 2.81%, below the return offered by the previous SSB. 

However, the 10-year average return may rise slightly for the next SSB, as the 10-year Singapore government bond yield has rebounded slightly in January.

As such, we would consider waiting for the next SSB if we are not in a hurry to deploy our capital or lock in the interest rates. 

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.  

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 1-year Singapore T-bill auction.

Applications for the latest SSB close at 9pm on 26 January (Friday). 

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

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