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Fixed deposits beat out Singapore Savings Bonds

FD rates are at 1.7 to 2.05%; the latest SSB will pay 1.68% at the end of its first year

Financial institutions, such as Standard Chartered Bank, are offering 1.7 to 2.05 per cent promotional rates for their 10- or 12-month Singapore-dollar fixed deposits.


RETAIL investors' interest in Singapore Savings Bonds (SSBs) has waned in recent months, likely due to competition from banks offering higher rates for fixed deposits, DBS Group Research said on Thursday.

The total applied amounts for SSBs in May and June were S$274.5 million and S$275.4 million respectively, down from more than S$400 million in February (S$456.6 million), March (S$455.1 million) and April (S$401.8 million).

One plausible reason for this drop in demand for SSBs is saturation in investor appetite.

But this is unlikely because the amount of outstanding SSBs stands at S$5.5 billion, which is still small compared to the total deposit base, said Eugene Leow, rates strategist at DBS Group Research.

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Instead, higher fixed-deposit rates from banks may have contributed to the lower demand for SSBs, he said.

Likewise, a Standard Chartered (StanChart) spokesman said: "Our clients are generally rates-sensitive and would typically opt for fixed deposits when there are good promotional rates."

Financial institutions are offering 1.7 to 2.05 per cent promotional rates for their 10- or 12-month Singapore-dollar fixed deposits.

The most attractive rate at the moment appears to be from the State Bank of India, which will pay 2.05 per cent for 12-month placements of between S$50,000 and S$1 million in its promotion lasting till end-July.

Other promotions for this month include CIMB's 1.85 per cent for 12-month online placements of at least S$10,000; UOB's 1.7 per cent rate for a 10-month tenor with at least S$20,000; and StanChart's 1.8 per cent preferential rate for priority-banking customer for a 12-month tenor with a S$25,000 minimum.

OCBC is also offering 1.7 per cent for 12-month Singapore-dollar placements of at least S$20,000.


In contrast, the latest SSB to be issued on Aug 1 will pay 1.68 per cent at the end of its first year - down from last month's 1.93 per cent for the July 1 issue.

Applications for the Aug 1 SSB will close on July 26. The minimum investment amount is S$500.

So far in 2019, SSB first-year rates have fallen from 2.01 per cent for the Jan 2 issue, to 1.98 per cent for Feb 1 and 1.95 to 1.96 per cent in the March, April and May issues.

It dipped to 1.88 per cent for June and picked up momentarily to 1.93 per cent for the July issue, before dropping again to the latest 1.68 per cent for the August one.

Selena Ling, head of treasury research and strategy at OCBC Bank, said: "The SSB yield has tracked Singapore Government Securities (SGS) bonds lower, following the global bond market rally fuelled by the Fed's dovish hints at their June meeting."

Mr Leow from DBS said the 1.68 per cent SSB rate is "quite low", seeing as savers typically don't place their funds beyond the first year and seek "very short-term" investments.

In the coming months, he believes demand for SSBs could ease further if short-term yields continue to fall below 2 per cent, which appears to be a key hurdle rate for investors.

"Savers are quite savvy; I've heard of 'professional' fixed-deposit rollers who go from one bank to another (in search of higher fixed-deposit rates)," he said.

As banks seek funding, the amount of fixed deposits has increased by S$13 billion since the start of the year, Mr Leow noted. "Tightness in the banking system is also reflected in the widening spread between the six-month swap offer rate, or SOR, and the six-month Sibor (Singapore Interbank Offered Rate)," he said.

Since end-May, the six-month SOR has fallen by 28 basis points. In comparison, Sibor has held steady.

Singapore's short-term rates - such as Sibor and fixed-deposit rates - are now higher than yields for the SGS 10-year bond, mainly because US rates heavily influence Singapore rates, said Tan Teck Leng, APAC FX strategist at UBS Global Wealth Management.

The US yield curve is now inverted, with its 10-year Treasury yields lower than short-term rates, with markets already pricing in a US slowdown and the rising risk of a recession, he said.

OCBC's Ms Ling said that there remains competition for funds, thus it might be difficult for financial institutions to lower their fixed-deposit rates significantly in the short term.

She noted that the cut-off yield was 1.93 per cent at the most recent June 27 auction of the Singapore government's six-month Treasury Bills (T-Bills). These will be issued July 2.

But Mr Tan from UBS believes that the current situation - of fixed-deposit rates and Sibor being higher than SSB rates - might not last, especially if the US Federal Reserve starts to cut rates in the coming months.

"This is because Sibor is driven by two key factors: US interest rates and SOR, and it's important for investors to note that SOR is already falling - partly a reflection of growing expectations for a weakening US dollar - on the expectations of the Fed's rate cuts," he added.

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