SSB 10-year return at 2.77%. Apply now before rates fall further?

What happened?

Since the Fed rate cut last week, many investors have been looking at ways to lock in interest rates over a longer time period. 

Earlier, I shared why I am looking at the latest issuance of the Singapore Savings Bonds (SSB) to earn a higher yield before interest rates fall further. 

The current issuance of the SSB offers a 10-year average interest rate of 2.77%.

While this is lower than the average interest rate of 3.10% in the previous SSB, it may still be worthwhile applying if interest rates were to continue falling sharply.

As such, I decided to take a look at the interest rate projection for the next SSB to decide if I should apply now. 

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

#1 – Current SSB offers 10-year average interest rate of 2.77%

The current issuance of the SSB offers a decent interest rate.

If you hold on to the SSB for 1 year, you will receive an average return of 2.59%.

If you hold on to the SSB for 10 years, you will receive an average return of 2.77% per year.

The 10-year average return declined from 3.10% to 2.77% since the previous SSB offering.

It is, however, still higher than the average interest rate offered by the SSB historically.

#2 – SSB interest rate projected to fall to about 2.53%

If you are new to the SSB, what you would need to know is 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 fallen in the month of September.

This is due to rising investor expectations of sharp interest rate cuts by the US Federal Reserve. 

As of 20 September 2024, the closing yield on the 10-year Singapore government bond yield was at 2.48%.

This is below the 10-year average return offered by the current SSB. 

Taking the average yield in the month of September, this may mean that the 10-year average return for the next SSB may be lower than the current one.

Based on our SSB interest rate projection as of 24 September 2024, the average return over 10 years for the next SSB may be at 2.53%.

This is calculated using the average of the closing yield of the 10-year government bond so far in September, and assuming that the yield will remain at 2.48% for the remaining working days of the month. 

#3 – Demand for SSB has been declining

With the lower interest rate offered by the recent SSBs, demand has fallen in the August issuance of the SSB.

There were S$829 million of applications for the SSB in the previous issuance which offered a higher 10-year average return of 3.10%.

This was within the S$900 million of SSBs issued and there was no allotment limit.

Despite a smaller issuance size of S$800 million for the current SSB,  investors may still get a full allotment if demand for the SSBs continues to decline from the previous issuance. 

What would Beansprout do? 

The latest issuance of the SSB offers a 10-year average return of 2.77%, below the return in the previous SSB. However, the returns are still higher than the historical average. 

More importantly, the 10-year average return on the next SSB is projected to fall to about 2.53%, as the 10-year Singapore government bond yield has declined in September.

As such, it might be more worthwhile to apply for the current SSB rather than to wait for the next one. 

If you are worried about allotment for the SSB, it might be helpful to note that eligible investors were able to get full allotment in the previous SSB as demand has fallen.

To find out how the yield on the SSB compare with other assets such as FD and T-bill, check out our comparison of instruments to park your savings. 

To find out if it is worthwhile swapping previous issuances of SSB with the upcoming SSB, check out our SSB swap calculator.

Applications for the latest SSB close at 9pm on 25 September (Wednesday). Redemptions of SSBs will also close at 9pm on 25 September (Wednesday).

You can receive a email reminder if you are afraid of missing out on the application deadline.

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

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