Singapore Savings Bond coupon rates for 1st-year at 2.6%; 10-year average at 2.75%

THE 10-year average return for the October issue of the Singapore Savings Bond (SSB) that opened on Thursday (Sep 1) is 2.75 per cent while the first-year interest rate is at 2.6 per cent - both lower than September’s issue.

This is despite the first-year interest rate that the SSB should draw from is higher: the 1-year Singapore Treasury bill (T-bill) for August averaged 2.83 per cent. That on the 10-year government bond averaged 2.75 per cent.

The SSB coupon rates for each issuance are determined such that the average annual compounded return over an investor’s holding period is linked to the yield of a Singapore government bond of a corresponding tenor in the previous month – subject to adjustments. But the government had said adjustments won’t affect the return on the SSB if it is held for the full 10 years.

A fortnight ago, it was flagged by The Business Times that this tranche of SSB will be an interesting one to watch, as the 1-year T-bill has been rising over its 10-year counterpart in yield for most of August.

The yield curve of the October SSB should thus have a downward slope. But the government had said that it offers SSB investors a return that increases with their holding periods, and may make adjustments to ensure that the return does not step down before the SSB matures.

There is a bit of inversion in United States Treasuries because of the steep interest rate hikes from the Federal Reserve to tamp down inflation and that had spilled over into Singapore.

SSB interest rates, which had been on the rise this year, have already dipped. The January SSB bore an interest rate of 2.44 per cent in its 10th year and an average return of 1.78 per cent per annum if held to maturity.

Both those numbers rose steadily till the August issue, which bore an interest rate of 3.29 per cent in the 10th year and an average return of record high of 3 per cent per annum. The September issue, however, had an interest rate of 3.04 per cent in the 10th year and an average return of 2.8 per cent per annum.

Meanwhile, applications dipped in only 2 months so far this year: February (S$75.5 million) and September (S$1.9 billion), and peaked in August at S$2.4 billion.

While lower coupon rates for the September issue might have led to a drop in application amounts, competition for liquidity has heated up with financial institutions racing to raise savings rates.

The maximum amount offered in the October issue of SSB is capped at S$900 million and the tranche closes at 9 pm on Sep 27.