SSB offers good alternative to T-bills. Subscribe or wait for next SSB?

What happened?

There has been much discussion about the latest SSB (SBDEC23 GX23120Z) which will be issued on 1 Dec 2023.

Earlier, we shared that we like the latest SSB as it offers a 10-year average interest rate of 3.40%. 

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. 

This makes it more attractive compared to the T-bill and fixed deposit for investors who have a longer time horizon, even as the T-bill may offer a higher yield in the short term. 

However, we have also received many questions on whether we should subscribe to the current SSB or wait for the next SSB. 

After all, we might have limited spare cash, and are not able to redeem the SSB and use the same pool of money to subscribe to the SSB in the same month.

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 subscribe to the current SSB or wait for the next one?

#1 – Current SSB offers attractive 10-year average interest rate of 3.4%

Firstly, 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 3.30%.

If you hold on to the SSB for 10 years, you will receive an average return of 3.40% per year.

As we can see from the chart below, the 10-year average return of 3.40% is one of the highest historically. 

It has only been exceeded by the December 2022 issuance of the SSB, where the 10-year average return reached 3.47%.

#2 – SSB interest rate projected to decline

The question that many investors have at the back of their minds is whether the interest rate for the next SSB will be higher or lower.

This may help us to consider whether to subscribe to the latest SSB or to await the next SSB. 

How are we able to get an indication of the interest rate for the next SSB?

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.

So let us take a look at how the 10-year Singapore government bond yield has moved this month.

As seen in the chart below, the 10-year Singapore government bond yield has fallen sharply in November from a peak of about 3.50% in October. 

The fall in government bond yield came as investors gained confidence that the Fed may stop hiking interest rates after its most recent meeting.

In addition, US inflation has also moderated more than expected. 

As of 24 November 2023, the closing yield on the 10-year Singapore government bond yield was at 3.00%, having fallen to as low as 2.93% on 21 November 2023. 

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 24 November 2023, the average return over 10 years for the next SSB may be at 3.05%. 

This is calculated using the average of the closing yield of the 10-year government bond so far in November, and assuming that the yield will remain at 3.0% for the remaining working days of the month. 

If you have been following the SSB projections on ilovessb.com, you may have noticed that our projections are slightly different.

For example, ilovessb has a projection of an average 10-year return of 3.08% as of 24 November. 

This is likely due to differences in the assumption on the yield on the 10-year government bond for the rest of November. 

However, it would appear that the average 10-year return for the next SSB is likely to be lower, unless the 10-year Singapore government bond yield spikes sharply in the coming days. 

#3 – Allotment might be lower than previous issuance 

With the attractive interest rates on the latest SSB and 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$1.2 billion in the November issuance of the SSB, close to double the amount of applications for the October issuance. 

With only S$1.0 billion of SSBs issued, the maximum allotment of the SSB in the previous issuance was up to S$47,5000 per individual. 

Looking further back, in the December 2022 issuance of the SSB when the 10-year average return was at 3.47%, there was S$1.7 billion of applications for the SSB. 

This led to a maximum allotment of just S$14,500 per individual in the December 2022 issuance of the SSB. 

What would Beansprout do?

The latest issuance of the SSB offers an attractive 10-year average return of 3.4%, one of the highest in history.

With the 10-year average return on the next SSB expected to decline compared to the current SSB, it may be even more 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. 

However, we need to be mindful that we may not be able to get our target allocation of the SSB, as demand for the SSB has risen in recent months.

One of the ways to smooth out the interest rate fluctuations is to build a bond ladder. 

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 3.8% 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 27 November (Monday). 

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

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