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 yesterday.
Applications for SSBs came in at $274.5 million in May and $275.4 million last month, down from more than $400 million in February, March and April.
At first glance, this decline may seem odd, said Mr Eugene Leow, rates strategist at DBS Group Research, who noted that interest rates here and in the United States have been falling in expectation of more rate cuts.
So "the option to lock in higher returns especially compared to savings deposits should entice retail investors", Mr Leow added.
Higher fixed deposit rates from banks may have contributed to the lower demand for SSBs, he said.
Some banks are offering promotional rates ranging from 1.7 per cent to 2 per cent for 12-month Singapore-dollar fixed deposits - above the 1.68 per cent paid by the latest SSB for the first year.
Maybank has been offering a 2 per cent promotional rate since May 1 for its 12-month Singapore-dollar fixed deposits with a minimum of $20,000 deposited.
July promotions include CIMB Bank's 12-month fixed deposits offering 1.85 per cent for online placements of at least $10,000, United Overseas Bank's 1.7 per cent for a 10-month placement of at least $20,000, and Standard Chartered's 1.7 per cent - or 1.8 per cent for priority-banking customers - for 12-month fixed deposits with a $25,000 minimum.
OCBC is offering 1.7 per cent for a 12-month Singapore-dollar placement of at least $20,000.
In contrast, the SSBs to be issued on Aug 1 will pay 1.68 per cent at the end of the first year - down from last month's 1.93 per cent for bonds issued on July 1. Applications for the Aug 1 SSBs close on July 26. The minimum investment is $500.
The 1.68 per cent interest is "quite low", seeing as savers typically do not place their funds beyond the first year and seek "very short-term" investments, Mr Leow said.
In the coming months, 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, he added.
"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)," Mr Leow noted.
The amount of fixed deposits held by the banks has increased by $13 billion since the start of the year, he pointed out, adding: "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)."