With the release of the June 2023 tranche of Singapore Savings Bonds, the returns has dropped to an extremely flat yield of 2.8% for the entirely of the 10-year duration.

A 10-year un-Fixed Deposit heh.

While I have selectively bought specific tranches in the past, I think I have more than enough allocation as of right now.

Singapore Savings Bonds returns have reached new highs in previous months as the momentum of Fed rate hikes continued to gather pace.

If you’re happy with these returns for what is virtually a risk-free instrument, you would be delighted!

FREE RESOURCE : Read These 37 Things To Become An Expert On The Singapore Savings Bonds

For the Singapore Savings Bonds (SSBs) historical rates from October 2015 until June 2023, please head over to my page (SSB Historical Rates) for more details.

Here are the latest details.

June 2023 SSB Tranche – SBJUN23 GX23060E 

• Amount offered : S$700 million
• Interest payment months : Jun and Dec (your first payout is Dec 2023)
• Opening date : 02 May 2023, 6pm // first business day
• Closing date : 26 May 2023, 9pm // fourth last business day
• Allotment date : 29 May 2023, after 3pm // third last business day
• Issue date : 01 Jun 2023
• Maturity date : 01 Jun 2033

Yearly interest rates can be seen below below –

Redeem older tranches for SSBs for newer ones

Of course, don’t forget that you can always recycle your older and lower-yielding tranches for SSBs for newer ones if you happen to still be holding on to less attractive ones.

If you have available cash buffer, consider redeeming old tranches of SSBs and applying for newer ones like many are doing.https://t.co/Gl7L1bwCc8

— Kevin | Turtle Investor (@turtle_investor) November 29, 2022

Ever wondered how is the Savings Bonds yield determined?

Savings Bonds offer a return that corresponds with how long we hold them for.

By design, we receive less interest at the start but the amount “steps up” or increases over time.

The longer we hold our Savings Bonds, the higher our effective return is.

The interest rates of each Savings Bond issue are based on the average Singapore Government Securities (SGS) yields the month before applications for that issue open.

People have often wondered how there rates are determined. Well, I found the answer but I’m not great enough at Maths to understand everything in it.

If you are into the Maths behind SSBs, the official documentation is the authoritative source to learn how the coupon rate for each year of the Savings Bond’s tenor is determined – see formula below.

Note that interest rates may be adjusted to maintain the “step-up” feature if market conditions do not allow it – which is the situation we’re facing right now.

It is important to understand that all else being equal, a bond with a longer maturity will usually pay a higher interest rate than a shorter-term bond, since longer-term debt carry greater risk.

Inverted Yield Curve

An inverted yield curve occurs when yields on shorter-dated Treasuries rise above those for longer-term ones.

What we’re experiencing right now, whereby short-term bonds are yielding higher than long-term ones, is an anomaly i.e. an inverted yield curve.

FYI – Historically, an inverted yield curve is seen as an indicator of a pending recession!

In the above example for the December 2022 tranche, take a look at the yellow line which indicates the yield curve that was 6 months ago.

The chart (yellow line) resembles what the actual June 2022 Savings Bonds returns look like – lower at the start and higher towards the end.

• 1 year – 1.43%
• 2 years – 1.92%
• 5 years – 2.37%
• 10 years – 2.53%

The curve now (blue line) is out of whack which means MAS would have to adjust the interest rate into order to maintain the step-up feature.

As stated in the official documentation – “there may be certain occasions where the reference SGS yields do not allow a particular Savings Bond issue to have a monotonically increasing step-up interest feature.”

When this happens, MAS shall lower the coupon rates by the minimum amount necessary, to maintain a weakly monotonically increasing step-up coupon schedule.

That’s why we see short term (e.g. cash fund like MoneyOwl WiseSaver) yield upwards of 4% but Singapore Savings Bonds 1-year return is lower.

The reasoning is that the whole intent of Savings Bonds is to encourage long-term savings.

As a result, these adjustments may cause the average annual compounded return on the particular Savings Bond issue over one, two or five years to be less than the one, two and five-year reference yields.

However, the adjustments will not affect the issue’s return if held to maturity, which shall always equal the ten-year reference yield (subject to slight differences of up to +/- 0.03% due to rounding in the computation of the step-up coupons).

If this piece of information was helpful to you, don’t forget to check out my blog post that will get you up to speed with 37 important things on Savings Bonds.

What to do? Wait and see?

If you’re expecting the rates to go up in future (I think it is very unlikely) or simply adopting a wait-and-see approach, you can consider putting your funds into MoneyOwl’s WiseSaver (read my review here).

WiseSaver is currently giving a 5-day moving average returns of about 3.9% p.a. which is higher than the first year return of the Singapore Savings bonds, which means your idle funds can continue working hard for you while you wait.

In light of the current economic environment, fixed income bond funds has come back into the limelight after what many call “historic losses” in 2022. With seemingly far better valuations, some are banking on them for both capital appreciation with attractive yields – a perfect combo.

Syfe launched their newest Income+ Portfolio just days earlier. I wrote down my thoughts in a Syfe Income+ Not-A-Review blog post that talks about why I wouldn’t invest in it. Check it out if you have a few minutes to spare!