SINGAPORE SAVINGS BONDS
Singapore Savings Bonds (SSB) are a simple, risk-free way of investing in bonds. They are guaranteed by the Government and the price is always maintained at 100 per cent. The average interest rates of the previous SSB offers are 2.63 per cent, 2.78 per cent, 2.44 per cent and 2.5 per cent, if held to maturity.
The return for holding an SSB until maturity will match the average 10-year Singapore Government Securities (SGS) yield, which has been between 2 per cent and 3 per cent in the past 10 years. SSBs' interest rates are determined by the average SGS yields in the month before a tranche of bonds is released.
The disadvantage is each investor is limited to an investment of $100,000 and yields are lower than corporate bonds'. However, another way of looking at SSBs, given that they can be redeemed any time, is as a source of liquidity that can earn a higher return than fixed deposits.
DBS 4.7% Perpetual
OCBC 5.1% Perpetual
Bank perpetuals offer good yields but risk being called prematurely before their first call dates.
The panel believes the banks will likely not exercise that but will redeem the bonds on their first call dates. The bank perpetuals are offered in minimum sizes of $10,000 so they may not be accessible to smaller portfolios wanting diversification.
The two bank perpetuals, which are trading above par, offer a good yield of 3.5 per cent to 3.8 per cent.
CMA 3.8% JAN 22
CapitaLand Mall Asia (CMA) is one of the largest mall developers and managers in Asia. It was listed but privatised by CapitaLand in July 2014. It manages and has interests in malls across Singapore, China, Malaysia, Japan and India. It has a strong track record in developing and managing malls with good occupancy rates. Its low gearing and strong recurring record make it a strong credit.
CMT 3.08% FEB 21
CapitaLand Mall Trust is 28 per cent owned by CMA. It is the largest real estate investment trust owning malls in Singapore. Its high-quality portfolio of malls, stable operating record, the spread out maturities of its mall leases and relatively low gearing make it an investment grade credit.
FCL 3.65% MAY 22
Frasers Centrepoint (FCL) is a property developer. An increasing portion of income is coming from rents as it builds its portfolio of investment properties, which are a more stable source of recurring revenue.
However, this is tempered by its relatively high gearing and its aggressive expansion in the hospitality segment of its business.
iSHARES ASIA CREDIT BOND ETF
This exchange-traded fund (ETF) is tied to the JPM Asia Credit Index. This index is made up of US-dollar bonds issued by Asia-based borrowers.
Besides the exposure to US bond yields, this ETF exposes investors to the credit risk of Asian issuers and US-dollar risk. Given that the US dollar is expected to do relatively well versus the Singdollar, having some US-dollar exposure is not a bad thing at this time.