Is The Singapore Saving Bond Worth Getting?

Please read the disclaimer at the bottom of my blog if you wish to continue with the contents below.

The first tranche of the Singapore Saving Bond is biddable now and its average 10 years yield is 2.63%. We have to weigh the pros and cons before we rush to bid for this almost risk free bond backed by the Singapore Government.

First, one must know that the gradual annual yield step up mechanism effects compounding negatively. Why? Because you are getting the bulk of the yield after the 5th year. Secondly, you need a one month notice before you can sell out at par which means although liquidity is always available, it is slow liquidity.

Lets compare it with the original SGS bond that is currently trading on the exchange:

As of today the 10 year SGS bond listed on SGX is trading at 96.12 which gives an effective yield of 2.83%. Slightly higher than the SSB bond. If you are planning to enter and hold a small amount for the next 10 years, you can consider this alternative.

The benefit is that you are buying the exact same tenor bond backed by the government but at a slightly better yield. Another benefit is that you can exit anytime you want as it is listed and the yield is consistent yoy which makes for a better compounding instrument. Not forgetting you will also get the capital gain on the date of maturity(from purchase price of 96.12 to call back price of par on maturity).

The disadvantage however is the liquidity issue. You might not be able to sell all at the price you want and also the brokerage commission issue(SSB only charges $2 admin fee). The liquidity problem will be mitigated if your plan is to lock it up for 10 years as after 10 years, your bond will be recalled at par value. Do note that you don't have to rush into this first SSB issue, as there is a potential that the next issue might give us a higher average coupon compared to the current one.

If you are slightly less risk averse, you can consider retail listed bonds like Capmall Trust 3.08%(code TY6Z) maturing in six years time and Fraser Centre Point 3.65%(AXXZ) seven years bond. Both having higher yields than the government bond, with shorter tenor and trading below or very close to par now.