Interest in risk-free Singapore Savings Bonds (SSBs) appears to be tapering off with the Government receiving just $28.8 million worth of applications out of the maximum $300 million offered in its latest monthly round. Last month marks the weakest response since the SSBs' roll-out in September last year.
Financial experts, somewhat baffled by the drop-off in interest, believe some investors are adopting a wait-and-see attitude in the hope the SSBs' average annual returns will edge up soon as the United States Federal Reserve has raised US benchmark interest rates.
But the SSBs' returns are not directly linked to the US rate. The return for holding an SSB until maturity will match the average 10-year Singapore Government Securities (SGS) yield, which has been between 2 and 3 per cent in the past 10 years. So the returns of the subsequent issues this year are likely to be within this range.
Interest rates for SSBs are determined by the average SGS yields in the month before the announcement. As such, the interest rates for the next issue of Savings Bonds next month will be based on the average SGS yields this month.
The strongest take-up was the maiden issue when the Government received $418.2 million of applications. This fell to $259.4 million in October last year. In November and December, the figure plunged to $41.4 million and $44.4 million, respectively.
The product provides investors an affordable and flexible investment option. Each investor is limited to an investment of $100,000.
This year, the Government will offer up to $4 billion of SSBs. They are guaranteed by the Government and the price is always kept at 100 per cent.
The average annual interest rates of previous SSB offers were 2.63 per cent, 2.78 per cent, 2.44 per cent, 2.5 per cent and 2.58 per cent if held to maturity.
For this month's issue, the coupon rate will start at 1.09 per cent in the first year, stepping up every year to a final coupon payment of 3.35 per cent in the final year.
Investors can apply for the bonds till 9pm on Feb 24.