Latest Singapore Savings Bond undersubscribed; 10-year average return at 2.97%

THE latest Singapore Savings Bond (SSBs) allotted on Friday (Jan 27) attracted fewer applications than the amount offered, as the fiscal product’s 10-year average return fell below 3 per cent.

The February tranche of the SSBs, which are backed by the Singapore government, received S$477.1 million in applications for the S$700 million allotment.

A total of S$472.3 million was applied within individual allotment limits and allotted.

Returns on this tranche were lower than previous issuances. The February tranche is offering a first-year interest rate of 2.84 per cent, and a 10-year average return of 2.97 per cent.

In comparison, the January tranche offered a first-year interest rate of 2.95 per cent, and a 10-year average return of 3.26 per cent. Then, the SSBs already saw lukewarm interest, with S$909.7 million in applications for the allotment of S$900 million.

SSBs take their interest rates from the average yields of Singapore government bonds from the month before. They are, however, subject to adjustments to ensure that interest rates do not dip over time for inverted yield curves, in which the yields for short-dated bills exceed those of longer-dated bonds.

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Separately, the auction for a 10-year Singapore Government Securities (SGS) bond also closed on Friday, with a cut-off yield of 2.86 per cent.

The auction is a reopening of an existing bond that matures on Aug 1, 2032 and offers a coupon rate of 2.625 per cent per annum. It opened with a cut-off yield of 2.71 per cent in August 2022.

The SGS auction drew a total of S$5.8 billion in applications for the S$3.4 billion offer, giving it a bid-to-cover ratio of 1.7.

Non-competitive bids totalled S$617.5 million and were fully allotted. Those who submitted bids at the cut-off yield were allotted around 67 per cent of their application. The Monetary Authority of Singapore (MAS) was allotted S$400 million in this auction.

In a report on Wednesday, UOB interest rates strategist Victor Yong noted that this was the largest auction supply for the 10-year SGS bonds, so a bid-to-cover ratio outcome of under two times would not be surprising, nor negatively viewed.

He did not expect an upside surprise from retail investors, given that interest in savings bonds has been declining along with outright yields over the past months, although institutional demand is likely still supportive, with the consensus starting to look past peak monetary policy tightening.

Yong said: “This week’s 10-year SGS auction will be an important first test of demand for lower yield levels, especially when the prevailing yield level implies a dovish US Federal Reserve profile for 2023.”