What to do with Singapore Savings Bond Return So Low?


Singapore Savings Bond (SSB) dropped yet again!

The 1y rate is 1.56% and the 10y average yield is 1.71% for the Nov2019 issue!

I bought some of the Sep2019 issue. This post is on your strategies and if Singapore Savings Bond still comes in useful to you.

One quick tip: buy just a few days before the closing. There’s no benefit to buy too early also. Take note the closing date is always a few working days before end month (26th Nov 2019 for this issue).

Singapore Savings Bond (SSB) has NO potential capital gains unlike other bonds!

You’d buy the Singapore Savings Bond (SSB) from the SG government and it doesn’t have any conditions attached for it’s interest rates. It also doesn’t have an active trading market for it.

If you are unfamiliar with the Singapore Savings Bond, refer to the video guide below with a W.A.G formula to understand it.

By the way, there are retail bonds trading on SGX. There are also wholesale bonds are traded over-the-counter (OTC) which is via a dealer network.

Both have likely seen some capital gains in the last few months.

Just to explain, bond prices rise when interest rates drop.

But SSB also has NO risk of losses!

Singapore Savings Bond is really more like a deposit.

When interest rates eventually rise, bonds in general will lose paper value.

All the retail bond and wholesale bond mentioned above are likely negatively affected.

But the SSB does not lose value regardless of the interest rate environment.

You’d redeem the SSB back from government at capital + accrued interest as mentioned in the video above!

Why SSB still works as a “war chest” for market downturns

I bought Singapore Savings Bond Sep2019 issue and rates were low then already.

Because SSB is a “deposit”, I’ve decided to lock in just in case it fell further. Rates could unexpectedly stay low for many years ahead, who knows?

Jan2019 to Nov2019 SSB rates (blue for 1y and orange for 10y)

My purchase for the Sept2019 issue also does not have capital gains even though it was bought at a more favourable rate.

Scenario 1: Interest rates increase and equity markets still stay high

If interest rates for Nov2020 rise to become 2.01% again hypothetically, the simple strategy is to withdraw the month before and purchase the Nov2020 one. Continue on the “war chest” approach.

Be it $10,000 or $100,000, the extra transaction costs of $4 ($2×2) can still be worth it.

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