The latest Singapore Savings Bonds (SSB) offering is out with a 3.15% average yield over ten years. The first-year interest rate is 3.01%. This is higher than the previous offering at a 2.90% average over ten years. The latest offering breaks 3% again and nears its high in December 2022. Investors start to wonder if the rise will continue. Should we buy this latest Singapore Savings Bonds offering to lock in the rate?
Historical vs. Current Singapore Savings Bonds Rate
Is an interest rate of 3.15% considered high? Let us see the historical SSB rate.
Yes, the latest interest rate is relatively high. The first year and the average ten years yield are among the highest in recent times. If you look at the rates from 2021 and early 2022, they were hovering below 2%, so the 3% rate is an attractive proposition. Singapore Saving Bonds has an allocation cap of $200,000 per individual; thus, if you have reached the cap and have an existing SSB earning much less than the current rate, it is a no-brainer to replace the older SSB with this new one.
Will Singapore Savings Bonds Interest Go Up?
For those interested in SSB, you may wonder whether the interest will keep going up. It’s been climbing, so will it continue to rise? Nobody knows with certainty, but we can observe what the market thinks.
Short-term vs. Long-term rate
Singapore Savings Bonds is a long-term 10-year Singapore government bond. The rising interest rate we keep hearing about in the news relates to mainly the short-term to the medium-term interest rate. If you look at the US treasury yield rate, you can see that the short and medium-term rates have been rising much faster than the long-term rate, causing the yield curve to invert.
However, we can also observe that the long-term interest rate has been rising to ~4%, though slower than its short-term counterparts. As the short-term rates rise, the long-term rates usually also rise, albeit slower. If this long-term interest rate keeps rising, the SSB rate will also increase.
The long-term interest rate is generally going down. The past decade has seen some of the lowest yields hovering around 0.5-2.5%. Predicting the long-term interest rate is hard because it involves determining the economy’s long-term growth. It is also too early to tell whether this hike marks the end of the easy monetary policy and low-interest rate that we have been used to this decade.
Fed expected terminal interest rate
The Fed has embarked on raising interest rates to fight raging inflation. With the Fed’s target interest rate already at 4.50-4.75%, investors have been wondering whether or not the interest rate will continue to rise. We have covered several scenarios that may trigger the Fed to pivot; meaning starts to lower interest rates again.
The market has been pricing a much higher interest rate, reaching 5.50% by mid-year, and stays there for the rest of the year. If you think the market is correct, we can expect the short-term interest rate to continue to rise in the near term before stabilizing or going down towards the end of the year and next year.
In this case, we can expect the Singapore Savings Bonds rate to rise in the near term, possibly higher than its December 2022 high. Remember that SSB is long-term; thus, the rate will not be as high as the Fed’s short-term terminal rate. The yield curve is currently inverted; the shorter-term rate is higher than the longer-term rate. The long-term rate is priced by the market instead of directly impacted by the Fed’s action in the short term.
Barring any major black swan event, we think the current rate already provides a good enough entry point for those interested in buying the Singapore Savings Bonds. It gives a decent long-term return with the flexibility to redeem at any month. Should the interest rate continues to climb, you can roll your existing SSB into the newer issue to enjoy the higher rates.
How about T-Bills?
T-Bills are short-term 6-month and 1-year government bonds. As described above, short-term rates are impacted more by the Fed’s actions. You can read our coverage of the possible economic scenarios concerning the Fed’s actions in the near term.
If you agree with the market expectation described in Table-1 above, you can expect the T-Bills rate to increase again in the short term before stabilizing and going down toward the end of the year and the new year.
Again, we think the current T-Bills rate hovering around 4% already provides a decent entry point for those interested in parking their cash in T-Bills. You can consider using the ladder technique to scale in at a smaller amount every month if you expect the rates to continue to increase in the near term.
