Will returns for the next SSB stay above 3.3%?

What happened?

I noticed that there has been more discussion about the Singapore Savings Bonds (SSBs) recently. 

This is likely because of the attractive 10-year average return of 3.33% offered by the latest issuance of the SSB.

However, many in the Beansprout community have asked whether there might an allocation limit for the SSB due to the potentially strong demand. 

After all, we have seen applications for the Singapore T-bill reach record highs recently.

As such, I decided to take a look at the latest SSB interest rate projection to see if the interest rate may stay high for the next SSB, and what we can do if we are not able to get our target allocation for the current SSB. 

Will returns for the next SSB stay high?

#1 – Current SSB offers 10-year average interest rate of 3.33%

As mentioned earlier, the current issuance of the SSB offers a fairly high interest rate.

If you hold on to the SSB for 1 year, you will receive an average return of 3.26%.

If you hold on to the SSB for 10 years, you will receive an average return of 3.33% per year.

 The 10-year average return of 3.33% is higher than the rate of 3.06% 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 stay close to 3.3%

As a background, 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 bonds issued by the Singapore government. 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 been volatile in May, but remains high compared to the past one year. 

As of 24 May 2024, the closing yield on the 10-year Singapore government bond yield was at 3.29%, slightly below where it was at the start of the month. However, it has recovered from a low of below 3.2% just last week. 

Taking the average yield in the month of May, this may mean that the 10-year average return for the next SSB may be quite similar to the current one.

Based on our SSB interest rate projection as of 25 May 2024, the average return over 10 years for the next SSB may be at 3.29%.

This is calculated using the average of the closing yield of the 10-year government bond so far in May, and assuming that the yield will remain at 3.29% for the remaining working days of the month. 

#3 – Demand for SSB may surge in current issuance

With the higher interest rate offered for the latest SSB, demand may increase compared to the $301 million of applications in the previous issuance. 

We can look back at previous SSB issuances where the 10-year average return was around 3.3% to get an indication of the potential allotment for the latest SSB. 

In the SSB issuance for November 2023 when the 10-year average return was at 3.32%, there were S$2.2 billion of applications for the SSB. The maximum amount of SSB allotted was S$47,500. 

In the SSB issuance for October 2022 when the 10-year average return was at 3.21%, there were S$2.2 billion of applications for the SSB.  The maximum amount of SSB allotted was S$10,500.  

What would Beansprout do?

The latest issuance of the SSB offers a 10-year average return of 3.33%, above the return offered by the previous SSB. 

The 10-year average return on the next SSB is projected dip slightly but remain high at 3.29%, as the 10-year Singapore government bond yield has remained elevated in May.

This might provide some relief to investors who are worried about not getting the full allocation of the SSB in the current issuance.

In fact, I can think about building a bond ladder to smooth out the interest earned on the SSB over time.

This may also mean that it might be worthwhile redeeming previous SSBs and applying for the next SSBs.

To find out how much more interest you can potentially earning by swapping 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 6-month Singapore T-bill, which has a cut-off yield of 3.65% in the latest 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. 

Applications for the latest SSB close at 9pm on 28 May (Tuesday). Redemptions of SSBs will also close at 9pm on 28 May (Tuesday). 

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