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Govt could issue S$2-4b in Singapore Savings Bonds this year

Tuesday, May 12, 2015 - 05:50
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The government could potentially issue between S$2 billion and S$4 billion of the new Singapore Savings Bonds (SSB) in 2015 alone, depending on demand.

Singapore

THE government could potentially issue between S$2 billion and S$4 billion of the new Singapore Savings Bonds (SSB) in 2015 alone, depending on demand.

When the first tranche of these non-tradable government bonds is launched in the second half of this year, investors can apply for up to S$50,000 for each issue, and be allowed to hold up to S$100,000 of the bonds at any one time.

The minimum amount to apply for is S$500. The government will review these various caps if there is a need to after the programme has been in place for some time, said Senior Minister of State for Finance Josephine Teo in parliament on Monday.

The SSBs are a new type of Singapore Government Securities (SGS) designed to offer a long-term, flexible savings option with safe returns; both the principal and interest payments are guaranteed by the government.

A bondholder can get his or her money back at any time, with no penalty imposed. This means investors do not have to decide upfront on the duration of their investment.

The Monetary Authority of Singapore (MAS) will announce the programme's launch date at least a month before applications for the first issuance open.

New bonds will be issued every month for at least the next five years, with the central bank announcing each month's issuance size on the first business day of that month.

One can apply for the bonds through the ATMs of the participating banks - DBS/POSB, OCBC and UOB - or through DBS/POSB internet banking.

The bonds will be available for purchase using cash only, though Mrs Teo said that the government could allow the use of Central Provident Fund savings for these bonds in future.

Prospective investors will also need to have an individual Central Depository (CDP) Securities account with direct crediting service, allowing for payments to be made directly to a bank account. Investors must be at least 18 years old and have the necessary bank and CDP accounts.

Mrs Teo said the SSBs would be easily accessible to individual retail investors, and stressed that there was no need to rush to buy them.

Should the total applications exceed the total issuance size in a particular month, the MAS will allocate bonds to all applicants in increasing multiples of S$500. The allocation will stop when the individual gets the full amount applied for, or when the available bonds have been allocated, whichever occurs first.

This means that smaller applications will have a higher chance of getting the full allotment; investors with larger applications may not get the full amount that they want.

The House passed amendments to the Government Securities Act on Monday, after Mrs Teo and several other MPs spoke on the topic.

The law previously allowed government securities to be transferred and pledged, which meant that holders of securities could freely transfer ownership to other parties or trade the securities in the open market.

With the amendments approved, the government can now impose restrictions on such transfers and pledges in future new issues. The changes will also pave the way for the SSBs to be issued as non-tradable securities.

Mrs Teo said: "The change is necessary to protect people from capital losses. When interest rates rise, instead of selling them in an open market at a price that is possibly lower than the purchase price, individuals are assured of getting their full capital back should they decide to redeem the bonds with the government."

On the other hand, when market interest rates fall, bond-holders will not enjoy a possible price appreciation or capital gain, but would benefit from their existing SSBs' higher-than-market interest rates that had been locked in at the point of purchase.

"The restrictions on transfers and pledges of government securities will be set out in the terms of issue for the Savings Bonds. Conventional SGS are not affected and will remain tradable," added Mrs Teo.

OCBC Bank's head of wealth management in Singapore Tan Siew Lee said the bank regarded the SSB as complementary to its existing products:

"With the Singapore Savings Bond, investors will be able to park some of their savings for longer-term goals for which they do not want to undertake risk, while seeking exposure for potentially higher returns on their other savings through financial products with a shorter tenor."

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