The government have found a way to borrow money from the citizens and not be criticized about it.
This year have been special for the Singapore Savings Bonds in that if you held on to the SSB for 1 year, your yields would be near 1.6% to 2.0%.
Subscription and demand for the Singapore Savings bonds have been overwhelming.
This is why MAS have announced to:
- Let SRS account holders purchase Singapore Savings Bonds
- Double the individual limit that an individual can purchase the Singapore Savings Bonds. This means that, from 1 February 2019, each investor will be able to apply for up to S$200,000 of SSB, taking into account both SSB purchased using cash and SRS funds.
- MAS will launch a My Savings Bonds portal in March 2019. The portal will allow investors to view their total SSB holdings, purchased using both cash and SRS funds.
Demand have outstripped supply in all but one month.
The monthly issue for Singapore Savings Bonds will double from $150 mil to $300 mil SGD.
This means that in 1 year, the government would borrow $3.6 billion from the citizens.
I think this is good for Kyith as a whole.
But its also good for SRS account holders. The data shows that one third of all SRS account resides in cash, so with this, they can earn a higher interest rate.
While SSB is attractive, Equities can be more Attractive
I think one pervasive thought process is to keep cash while the equity markets is in a challenging situation.
And this does encourage a bit of hoarding behavior for cash.
While this increase in limits for the SSB certainly increases flexibility, but also your more liquid low risk portion of the portfolio, do bear in mind that equity markets are more attractively valued versus 1 year ago.
And you need the potential of higher risk (potential downside and upside) to earn a higher return.
Short term Lending Rates may become More Competitive
One train of though my brother had was that as SSB become more well known, popular, it may suck the liquid money from the traditional lenders.
This might increase their cost of borrowing (the deposits they pay to you) and might cut into a segment of the bank’s net interest margin.
While this is good for consumers, for the bank investors it might provide a cap on their earnings, but this is somewhat expected. The SSB is just like another competitor.
I think for now, if I manage to find more money lying around not doing anything, I have less of a headache.
The hurdle accounts always changes their terms and conditions, and the higher yielding accounts, always wants me to transfer new money in.
Even the very good CITI Maxigain has up their minimum to S$70,000!
In a time like this, SSB becomes more attractive because I find it difficult to make people jump through so much hoops.
For too long the citizens are skeptical about transferring money to top up the CPF and it requires a lot of promotion for people to do that. Still, people do not like their money to top up.
It has been so difficult to get the people to buy Singapore Government Securities bonds (SGS bonds)
So this was a very successful campaign to get more Singaporeans to willingly lend to the government.
However, Singaporeans only recognize safe investments at a good return, so it will be interesting to see what happens when the short 1 year rate returns to 1%.
Personally, I am disappointed more that the money market unit trust cannot hit close to 1.5%. That would have been an even better alternative for me.
Here are My Topical Resources on:
- Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
- Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
- Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
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- Retirement Spending Can Vary from 25% to 100%. Not your usual 2% to 3% a Year. - November 23, 2023
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