The latest SSB December 2023 result was red hot, with demand surging to a year-high of $1.9 billion. As a result, we saw the allotment limit of $20,500 for this month. Did you get your desired allocation? What’s driving this surge of demand?
Highly Oversubscribed: Demand Jumped
The demand for this month’s SSB jumped significantly to $1.9 billion. In comparison, last month’s SSB only saw $1.2 billion in total application amount. In the middle of this year, we saw only around $200 million for the total application amount.
Because the total amount available this month is only $1 billion, we ended up with an allotment limit of only $20,500. Those who applied $20,000 or less got their full desired allocation. Applicants who applied for $20,500 or more were either allotted $20,000 or $20,500, with around 27.83% getting the $20,500 allocation. This allotment limit is much lower than last month’s limit of $47,500.
What could be driving this jump in demand?
Highest Interest Rates
One main factor of this surge in demand is the high-interest rates offered in this SSB December 2023 offering.
The 10-year average return is 3.40%, and the first-year return is 3.30%. Both rates are at one of the highest levels in recent years. They are also a step up from last month’s offering of just 3.32% for the 10-year average and 3.21% for the first-year return.
Interest Rates for the Next SSB May Decline
The other factor that could be pushing the demand further is the expectation that the next SSB may offer lower rates. Because SSB rates are linked to the SGS bond yields, we can roughly estimate the upcoming SSB offering rates based on the current SGS bond yield movement.
Let’s look into the current 10-year SGS bond yield:
As inflation continues to moderate and the US Federal Reserve is expected to near the end of its rate-hiking cycle, the market has been pricing in lower interest rates. As of 29 November 2023, the 10-year SGS bond yield had fallen to around 3%, a steep decline from 3.4% earlier this month.
Due to this decline, we expect the upcoming SSB Jan 2024 offering to yield a 10-year average of close to 3%, with the first-year return also close to 3%. Unfortunately, this is substantially lower than the December offering.
What Would We Do?
We are satisfied that we managed to get our desired allocation in this SSB December 2023 result. Because we have been optimizing our SSBs this past year, next month’s SSB offering for January 2024 may not be attractive enough for us to recycle our older SSBs. We will await the official rates announcement to determine if it is worth recycling.
If you are still looking to complete your SSB allocation in your portfolio, next month’s offering, while lower, should still be quite competitive and one of the highest in recent years. You may look at our SSB interest rates history coverage to compare how competitive the current rates are historically.
If you are interested in applying for SSB, you may check our guide on how to buy SSB.