Investing in Treasury Bills (T-bills) and bonds is a fundamental component of a balanced investment strategy. For those considering the Singaporean market, T-bills and bonds offer a stable and relatively low-risk option to diversify portfolios. This guide will walk you through the essentials of investing in Singapore T-bills and bonds, explaining how they work, and how you can get started.
Understanding Singapore Treasury Bills and Bonds
What are Treasury Bills (T-bills)?
Treasury Bills are short-term securities issued by the Singapore Government. They are considered one of the safest investments available, with a ‘AAA’ credit rating from credit rating agencies. T-bills typically have maturities of 6 months or 1 year and are sold in denominations of S$1,000.
T-bills are issued at a discount to their face value, so they do not pay interest. The upfront discount is essentially the profit you earn and you will receive your full principal amount when the T-bill matures.
The last Auction Results on 6 Jun 2024 was 3.76% p.a. cut-off yield for the BS24111X 6-Month T-bill. The upcoming 6-month T-bill (BS24112W) will be announced on 12 Jun, with auctions commencing on 20 Jun.
Do note that the actual interest yield for T-bills is disclosed only when the auction results are announced. Unlike Singapore Savings Bond (SSB) and the Singapore Government Securities (SGS) bond, where the exact interest rates are known before purchase, T-bills are auctioned first, and the yields are determined afterward.
You can invest in T-bills using cash, Supplementary Retirement Scheme (SRS) funds, or your CPF savings. Make sure that you have sufficient funds in your account before applying.
In the auction process, you can place either a non-competitive bid or a competitive bid.
A non-competitive bid is specifying the amount you want to invest and not the yield. Choose this option if you want to invest in the T-bill regardless of the return or are unsure of what yield to bid. If you intent to invest in the T-bill only if it yields above a certain level, submit a competitive bid. You can specify the yield you are willing to accept in percentage terms, up to 2 decimal places and this is usually for savvy investors.
Keep in mind that you may not receive the full amount you applied for, depending on how your bid compares to the cut-off yield. T-bills are issued 3 business days after the results are announced, so the money will be refunded if your bid is unsuccessful or invalid.
What are Bonds?
Bonds are medium to long-term instruments issued by the government with varying maturities. They are low-risk investments, providing periodic interest payments (coupons) until maturity, when the face value is repaid.
Singapore Savings Bond (SSB)
These are issued every month and offer interest rates that increase the longer you hold, with a 10-year maturity starting from a low minimum investment of $500 and maximum of $200,000. You can buy these using cash or SRS and the interest payments every 6 months after issuance will be paid to the respective accounts.
When you redeem your SSBs, the proceeds are credited to our account on the second business day of the following month. You will still receive pro-rated interest for any withdrawals made. SSBs can be redeemed in any given month with no penalty other than a $2 redemption fee.
If no redemptions are made, the principal and final interest payment are automatically credited to the bank account linked to your CDP account after the 10-year maturity period. The interest payments from SSBs are also exempted from tax. However, these cannot be bought or sold in the open market, or traded on the SGX.
Based on the SBJUL24 GX24070S ****issuance in the table below, it is a flat return of 3.26% per annum for the first 6 years, and only increased between the 7th to 10th year. The average return is 3.30% throughout its 10-year tenor.
SBJUL24 GX24070S Interest Rates
Source: MAS as at 17 Jun 2024
Singapore Government Bond (SGS)
These are investment bonds issued by the Singapore government and pay a fixed coupon rate twice a year. They have maturities ranging from 2 to 50 years and there are three categories of SGS bonds – SGS (Market Development), SGS (Infrastructure) and Green SGS (Infrastructure). The minimum investment amount is $1,000 and you can buy using cash, SRS and CPD funds. SGS bonds are issued monthly with different interest rates and do not offer early redemption but can be traded on the secondary market. You can check the 2024 issuance calendar for actual dates.
Summary of Features of Singapore T-bills and Bonds
Safety and Stability: Backed by the Singapore Government, T-bills and bonds are among the safest investment options, with minimal risk of default.
Predictable Returns: Bonds provide fixed interest payments, making it easier to predict and plan your cash flow.
Liquidity: T-bills are more liquid due to their short maturities. SGS bonds, while longer-term, can also be traded in the secondary market.
Portfolio Diversification: Adding T-bills and bonds to your portfolio can help balance risk, especially when combined with more volatile investments like stocks.
Low Entry: You can start investing from $500 onwards in the SSBs.
How to Start Investing
Step 1: Determine Your Investment Goals
Before investing, consider your financial goals and risk tolerance. T-bills are suitable for short-term goals and liquidity, while bonds are better for long-term income and stability.
Step 2: Open a Central Depository (CDP) Account
To invest, you need a CDP account which holds your securities and facilitates transactions. You can open a CDP account through local banks or the Singapore Exchange (SGX).
Step 3: Participate in Auctions
T-bills and SGS bonds are issued regularly and here is how you can participate:
Check Auction Dates: Monitor the Monetary Authority of Singapore (MAS) website for upcoming auction dates.
Submit Bids: Place your bids / apply through local banks DBS, OCBC, or UOB.
Allocation: If your bid is successful, the T-bills or bonds will be allocated to your CDP account.
Step 4: Purchase in the Secondary Market
If you miss an auction, you can still buy SGS bonds in the secondary market through the SGX. T-bills are typically not available in the secondary market due to their short-term nature.
Things to Consider
While T-bills and bonds are low-risk, they are not entirely risk-free:
Interest Rate: The value of bonds can fluctuate with changes in interest rates. Rising rates may reduce bond prices.
Inflation: The yield for T-bills is attractive though only slightly above the core inflation rate in Singapore, at 3.1% in April 2024. Do consider the the SSB or SGS bonds of you have a longer-term investment horizon.
Liquidity: In addition, if you are considering using CPF savings to invest in T-bills, think whether you would be using your CPF monies for buying a house within the next 6 to 12 months. While they are tradable, finding buyers in the secondary market can sometimes be challenging.
Investing in Singapore T-bills and bonds is a prudent choice for those seeking stable and predictable returns. Whether you are a conservative investor looking to preserve capital or a diversified investor aiming to balance a more varied portfolio, these securities offer a reliable foundation. By understanding the process and risks involved, you can effectively incorporate T-bills and bonds into your investment strategy, leveraging their benefits to achieve your financial goals.
This article provides a guide and does not constitute financial advice. Be informed and seek professional help if needed to secure a better financial future for yourself.
Invest and Grow Your Money Wisely,
Value Vaulter
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