SGX to offer SGS bond trading

Any thoughts fellow Buddies?

SGX to offer SGS bond trading
By Julie Quek | Posted: 08 June 2011 1621 hrs

SINGAPORE: Investors will soon be able to trade Singapore government (SGS) bonds on the Singapore Exchange from July 8.

Currently, investors can only trade SGS bonds through dealer banks.

With the new offering, SGX said investors will be able to trade the bonds through their brokers, in a manner similar to the way stocks are traded.

The exchange said this would likely improve both the price transparency and liquidity in SGS bonds.

Investors will also be able to access the bond prices on the SGX website or through their brokers.

A total of 19 SGS bond issues, with maturities of two years or more, totalling S$74 billion will be available for trading on the exchange.

SGX's fixed income market currently comprises corporate bonds and preference shares, some of them approved for investment using Central Provident Fund and Supplementary Retirement Scheme pension savings.

SGX head of fixed income Tng Kwee Lian said: "Trading of SGS bonds on SGX will make the price discovery process more efficient and transparent, thereby reducing trading cost for investors.

"Market makers will also be present, increasing liquidity and making it easier for individual investors to buy and/or sell SGS bonds at any time during the trading day".

As with securities traded on SGX, SGS bonds must be held by SGX's Central Depository (CDP) as custodian before they can be traded.

Investors will be able to view all their holdings, including SGS bonds, via a single statement from CDP.

-CNA/wk

I hope they do away with the 'Accrued Interest' feature and let the market factor it in into the bid/ask price. It's very confusing and cumbersome for non-sophisticated investors like me to try to compute, when making a buy/sell decison for SGS Bonds.

think it's a good 'alternative' to FDs ^^ definitely a welcomed move

Bonds - including SGS - for retail investors should be for those like retirees going for safety and are agreeable to receive just a fixed, low (but still higher than FD rates offered by banks) coupon or yield, with the intention to hold them till maturity. This will lower the market price risk - especially on long-dated bonds, and when SGD interest rates start to rise - which bond investors must face.

With SGD interest rates now at their historical low, the current yields on SGS's of different maturities are also at their historical low. Assuming USD interest rates will eventually have to rise, going forward we do have a real risk of a substantial drop in SGS prices when SGD interest rates start to rise. I doubt very much retail investors are at all equipped to manage such a risk, as interest rate changes first happen in the professional interbank money market, and a small rise in SGD interest rates will exert an 'amplified' impact and cause a disproportionately much bigger drop in the market prices of especially long-dated SGS's.

The SGS market is really more a professional market where the key players are banks and institutional funds, trading based on interest rate yields and global/regional macro-economic news flow, and changes in government fiscal, exchange rate and interest rate policies as directed by the central bank and/or treasury department. Whereas retail investors are more familiar with the direct prices quoted, and may not be able to handle other variables like different coupons for different series of issued SGS's with different maturity dates, current market interest rates, which all contribute to the determination of market prices of SGS.

My own main reservation on SGS is that the yields are just too low to provide any meaningful return for my investment purpose. So unless SGD interest rates go sky-high, it is unlikely that I will look at SGS.

When trading bonds, really the only things you need are either yields (inclusive of accrued interest) and/or the bond price (inclusive of accrued interest) and/or the remaining time to maturity of the bond.

The dirty yield and the dirty bond price (so called because they include accrued interest) are really two sides of the same coin, so in reality you only need to be concerned with yield/price and remaining time to maturity of the bond.

All things being equal, a rough rule of thumb is that if you have a bond with 5 years remaining maturity, for every 0.01% rise in interest rates, you roughly can count on its price declining by about 5 x current_bond_value x 0.01 x change in rates in percent. e.g. if you bought a 10000 units of a 5 year bond at 98 (meaning you paid $9800), then if rates rise by 0.05%, your bond value should change (lower) by approximately 5 x 9800 x 0.01 x 0.05 = $24.5.

In other words, if you are afraid of bond interest rates rising, but want safety, you can concentrate on low duration bonds because first they'd be less affected by a rise in rates and secondly, you have an option of riding them to maturity.

(09-06-2011, 02:46 PM)kazukirai Wrote: A total of 19 SGS bond issues, with maturities of two years or more, totalling S$74 billion will be available for trading on the exchange.

-CNA/wk

This is long over due. If retail investors can buy stocks, currencies, options, properties, commodities, structured products, unit trusts I don't see why not SGS bonds. Buying Wilmar is not super straightforward too - cooking oil has price restrictions in China, then you also look at the weather & supply patterns of soybeans, corn, wheat, palm oil etc etc. Anyone who can buy Wilmar can handle SGS bonds.

It beats sitting in a bank, fixed deposits and is safer than some of the money market funds (one of them offered in Sgp invested in the Commercial Paper of this nasty company called Hypo Real Estate).

It's a shame they don't offer securities with short term maturities like 3 months. With interest rates at a record low, it makes much more sense to be a borrower / issuer than to be a lender / bond investor. With the long bonds it's like lending the money for 20 years.

SGS 90 days T-bill yielding like 0.33 % p.a. what's there to offer to retail investors. The handling fee is much more expensive than bank deposit...

(09-06-2011, 09:22 PM)freedom Wrote: SGS 90 days T-bill yielding like 0.33 % p.a. what's there to offer to retail investors. The handling fee is much more expensive than bank deposit...

From the 1st post,

Quote:A total of 19 SGS bond issues, with maturities of two years or more, totalling S$74 billion will be available for trading on the exchange.

(09-06-2011, 08:38 PM)tanjm Wrote: When trading bonds, really the only things you need are either yields (inclusive of accrued interest) and/or the bond price (inclusive of accrued interest) and/or the remaining time to maturity of the bond.

The dirty yield and the dirty bond price (so called because they include accrued interest) are really two sides of the same coin, so in reality you only need to be concerned with yield/price and remaining time to maturity of the bond.

All things being equal, a rough rule of thumb is that if you have a bond with 5 years remaining maturity, for every 0.01% rise in interest rates, you roughly can count on its price declining by about 5 x current_bond_value x 0.01 x change in rates in percent. e.g. if you bought a 10000 units of a 5 year bond at 98 (meaning you paid $9800), then if rates rise by 0.05%, your bond value should change (lower) by approximately 5 x 9800 x 0.01 x 0.05 = $24.5.

In other words, if you are afraid of bond interest rates rising, but want safety, you can concentrate on low duration bonds because first they'd be less affected by a rise in rates and secondly, you have an option of riding them to maturity.

is there infor on the duration made available for retail investors?
and i am just wondering if the existing dealer banks will cease to provide the 'national service' of bond purchase request by retail investors.
depending on how is the brokerage charges for purchasing the bond from sgx, i still prefer the old method of bidding via the local banks at no cost at all!

(09-06-2011, 10:14 PM)pianist Wrote:

(09-06-2011, 08:38 PM)tanjm Wrote: When trading bonds, really the only things you need are either yields (inclusive of accrued interest) and/or the bond price (inclusive of accrued interest) and/or the remaining time to maturity of the bond.

The dirty yield and the dirty bond price (so called because they include accrued interest) are really two sides of the same coin, so in reality you only need to be concerned with yield/price and remaining time to maturity of the bond.

All things being equal, a rough rule of thumb is that if you have a bond with 5 years remaining maturity, for every 0.01% rise in interest rates, you roughly can count on its price declining by about 5 x current_bond_value x 0.01 x change in rates in percent. e.g. if you bought a 10000 units of a 5 year bond at 98 (meaning you paid $9800), then if rates rise by 0.05%, your bond value should change (lower) by approximately 5 x 9800 x 0.01 x 0.05 = $24.5.

In other words, if you are afraid of bond interest rates rising, but want safety, you can concentrate on low duration bonds because first they'd be less affected by a rise in rates and secondly, you have an option of riding them to maturity.

is there infor on the duration made available for retail investors?
and i am just wondering if the existing dealer banks will cease to provide the 'national service' of bond purchase request by retail investors.
depending on how is the brokerage charges for purchasing the bond from sgx, i still prefer the old method of bidding via the local banks at no cost at all!

local banks act as the market maker for the bonds sold. so you pay the spread they assign. Which may or may not be higher than brokerage+clearing fees