Latest SSB offers 10-year rate of 3.1%. Better than T-bills and fixed deposits?

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 dived to 3.34%, after investors gained confidence that the Fed will cut interest rates in September.

The best 6-month fixed deposit rate in Singapore has also fallen to 3.25% p.a..

This led to a question in the Beansprout community about how we can lock in interest rates before they fall further. 

I thought it might be worth highlighting that the latest Singapore Savings Bonds (SSB) SBSEP24 GX24090E offers a 10-year average interest rate of 3.1%.

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. 

Is it worth applying for the latest Singapore Savings Bonds (SSBs) as T-bill yield falls?

#1 – Current SSB offers 10-year average interest rate of 3.1%

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 3.06%.

If you hold on to the SSB for 10 years, you will receive an average return of 3.10% per year.

As shown in the chart below, the 10-year average return of 3.10% 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 as Singapore T-bill yield falls

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 the past month.

The fall in government bond yield came after easing inflation led to rising hopes that the US Federal Reserve will start cutting interest rates soon. 

As of 23 August 2024, the closing yield on the 10-year Singapore government bond yield has fallen to 2.74% from above 3.0% just a month ago.

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 August 2024, the average return over 10 years for the next SSB may be at 2.78%. 

This is calculated using the average of the closing yield of the 10-year government bond so far in August, and assuming that the yield will remain at 2.74% for the remaining working days of the month. 

#3 – Investors were able to get full allocation in the 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.

We have seen a fall in demand for SSBs in recent months with the decline in interest rates offered by the SSBs. 

The total amount of applications fell to S$969 million in the August issuance of the SSB from S$1.2 billion in the July issuance.  

With S$1.0 billion of SSBs issued, all eligible applicants who have yet to reach their individual limits were given full allotment of the SSB. 

It is important to note that the maximum amount of SSBs an individual can hold is S$200,000. 

Also, the issuance size for the latest SSB has been lowered slightly to S$900 million. This would mean that if demand for the SSB remains unchanged compared to the previous month, applicants may not be able to receive full allotment of the SSB. 

What would Beansprout do? 

The latest issuance of the SSB offers a decent 10-year average return of 3.10%. 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 sharply to below 3%, I would be applying for the current SSB to secure the high interest rates. 

While the 1-year SSB return of 3.06% is below the best 1-year fixed deposit rate of 3.2% p.a.  and the 6-month T-bill yield of 3.34%, the advantage of the SSB is that it allows us to lock in interest rates for up to 10-years, while offering the flexibility to redeem before maturity. 

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 for the best place to park your savings, we compare SSBs to T-bills and fixed deposits to find out how to allow our spare cash to work harder. 

Applications for the latest SSB close at 9pm on 27 August (Tuesday). 

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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