Singapore Savings Bond

[AQ.]

will not expect the first or second year interest to be high.

I thought the infographic from BT has already given a good idea of the rates mechanism. Quote: "average interest paid from the start through a particular year will match the yield on a Singapore Government Security that matured in that year and had been bought at the start." (Greentea has posted the link some posts earlier).

If I read correctly, the rates are locked in and pegged to the SGS at the onset of the issue i.e. if the bond is issued today, they will read the SGS yield curve today, lock-in the tenor pts, and the bootstrap their way up.

So suppose the 1-10y SGS yields are 1%, 2%.....10% at the start of the issue (highly exaggerated numbers)
then the saving bonds rate will be

yr 1: 1%
yr 2: 2*2-1=3%
yr 3: 3*3-1-3=5%

yr x: (SGS yield for x)*x - sum of all coupons before

and so on (adjust for discounting)

Essentially, if e.g. you cash out on yr 3, you will receive 5+3+1=9% from the savings bond, which is similar to that received by a holder of a 3y SGS held to maturity 3*3 = 9%

Another way to think abt it, is that suppose you go short a 3y SGS and buy the savings bond and cash out on the third year, there should be no arbitrage opportunities.

To me, it makes the SGS <10y redundant, since this is essentially the SGS+a free put at par (and something free is always good!). The only bad thing is that since these are not traded, you don't get the flight to safety effect of riskfree bonds - so the -ve correlation element in the ptf is missing (when risks sell off, riskfree goes up).

To me:
if you are in cash, you will want savings bond since you don't lose anything.
if you are in FD, you might not want savings bond esp if the curve is flat and you think rates are not going down
if you are in SGS, you prob want savings bond since you gain a free put, although you lose out on capital appreciation opportunities if risks collapse.

devil is in the details, esp the investment cap.

[safetyfirst]

Boc sg fd promotion 1.64% for 3 months min 100k

http://www.bankofchina.com/sg/bocinfo/bi...29479.html

I do agree it will have a positive impact on interest payable in saving and FD account as banks are likely to "fight" for deposit

Any FD promotion that is above market rate will have strings attached or are simply to tease you into developing a relationship with the bank (e.g. for new customers only).

You can say no to any other things,boc sg is fine,so far no cross selling

Do they charge a fee when you close your account with boc? From what i know about the local banks, they dont charge a fee

[NTL]

will not expect the first or second year interest to be high.

I thought the infographic from BT has already given a good idea of the rates mechanism. Quote: "average interest paid from the start through a particular year will match the yield on a Singapore Government Security that matured in that year and had been bought at the start." (Greentea has posted the link some posts earlier).

If I read correctly, the rates are locked in and pegged to the SGS at the onset of the issue i.e. if the bond is issued today, they will read the SGS yield curve today, lock-in the tenor pts, and the bootstrap their way up.

So suppose the 1-10y SGS yields are 1%, 2%.....10% at the start of the issue (highly exaggerated numbers)
then the saving bonds rate will be

yr 1: 1%
yr 2: 2*2-1=3%
yr 3: 3*3-1-3=5%

yr x: (SGS yield for x)*x - sum of all coupons before

and so on (adjust for discounting)

Essentially, if e.g. you cash out on yr 3, you will receive 5+3+1=9% from the savings bond, which is similar to that received by a holder of a 3y SGS held to maturity 3*3 = 9%

Another way to think abt it, is that suppose you go short a 3y SGS and buy the savings bond and cash out on the third year, there should be no arbitrage opportunities.

To me, it makes the SGS <10y redundant, since this is essentially the SGS+a free put at par (and something free is always good!). The only bad thing is that since these are not traded, you don't get the flight to safety effect of riskfree bonds - so the -ve correlation element in the ptf is missing (when risks sell off, riskfree goes up).

To me:
if you are in cash, you will want savings bond since you don't lose anything.
if you are in FD, you might not want savings bond esp if the curve is flat and you think rates are not going down
if you are in SGS, you prob want savings bond since you gain a free put, although you lose out on capital appreciation opportunities if risks collapse.

devil is in the details, esp the investment cap.

Yes, this is essentially what I mean.

Referring to the bond yields for SGS bonds (https://secure.sgs.gov.sg/fdanet/SgsBenc...rices.aspx), 1 year interest is around 1%, 2 years interest is around 1.3%. So first year will expect 1% interest, 2nd year will be around 1.6%. If based on BOC promo rates, Saving Bonds rate will still be less than the FD offer. There is still OCBC 3.05%, DBS 2.08%, SCB 1.88%, etc. of coz, these come with T&C.

Maybe another factor will need to consider is the amount of issuance per month. Will there be enough to share with the savers if everyone go for the maximum. And once the max per person is reached, they still have to put remaining money into banks if they don't invest.

SGS bonds still have its function. Saving Bonds is only available to retail "investors". Corporates and Insurers will still be getting the SGS bonds. The SGS bonds is also essential in setting the interests for the saving bonds for the particular month.

[opmi]

^^ max cap: Mother, Spouse, Children etc. More than enough. Maybe not enough for some VBs.....hahaha...

[CCUV]

Boc sg fd promotion 1.64% for 3 months min 100k

http://www.bankofchina.com/sg/bocinfo/bi...29479.html

I do agree it will have a positive impact on interest payable in saving and FD account as banks are likely to "fight" for deposit

Any FD promotion that is above market rate will have strings attached or are simply to tease you into developing a relationship with the bank (e.g. for new customers only).

You can say no to any other things,boc sg is fine,so far no cross selling

Do they charge a fee when you close your account with boc? From what i know about the local banks, they dont charge a fee

no idea buddy,you have to check with them. Anyway the shortest is 3 months,even if they charge I think is fair,you cant have your cake and eat it. They are already paying a much higher rate than any other banks now, the feature of the first deposit work with an option of locking up another 3 months at higher interest rate vs the first cycle,just in case the FED is not rising the interest rate as what the market is anticipating, you can still enjoy a second cycle at a higher rate at the customer request. If higher interest rate is offer by other banks, you can break the deposit after the first cycle and walk away.

[butcher]

MAS announced they will be coming out with the Singapore Savings Bonds, any fellow value buddies aware if these are available in the market already?


http://www.mas.gov.sg/news-and-publicati...stors.aspx

http://www.mas.gov.sg/~/media/resource/n...0Bonds.pdf

[Yoyo]

Hi butcher

The authority mentioned that more details will be make known in due time and the product will be available in second half of this year. Thus it is not available in the market yet.

[Happymeowmeow]

must wait for after june

[SpaceX]

Once available, how to purchase it?

[header]

No details yet. I just wonder what is the $ cap for each investor?