In the latest release of the May 2023 tranche of Singapore Savings Bonds, the returns has risen once again!

While I have selectively bought specific tranches in the past, I think I have 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 Singapore Savings Bonds (SSBs) historical rates from October 2015 until now, please see my page (SSB historical rates) for more details.

Here are the latest details.

May 2023 SSB – SBMAY23 GX23050W

• Amount offered : S$700 million
• Interest payment months : May and Nov (first payment in Nov 2023)
• Opening date : 03 Apr 2023, 6pm // first business day
• Closing date : 25 Apr 2023, 9pm // fourth last business day
• Allotment date : 26 Mar 2023, after 3pm // third last business day
• Issue date : 02 May 2023
• Maturity date : 01 May 2033

Yearly interest rates can be seen below below –

Probably expecting decent interest for this round as well with the u-turn in returns.

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

Of course, don’t forget that you can always redeem older and lower-yielding tranches for SSBs for newer ones.

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.

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.

However, 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.

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 “only” at 2.95%.

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.

Wait and see?

If you’re expecting the rates to go up in future (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 4.04% p.a. which is higher than the first year return of the Singapore Savings bonds (May 2023), which means your idle funds can continue working for you while you wait.