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Recently, as interest rates have risen, demand for bonds has increased from local investors. Unlike stocks, which are typically listed on stock exchanges, there is no central exchange for bond trading. Instead, the majority of bonds issued by governments and corporations are typically traded over-the-counter (OTC). Since they are not listed on major exchanges, investors usually need to seek out a broker to arrange bond trading.
As such, it is advantageous to understand the different types of bonds available in Singapore in order to enter the less transparent OTC market and have more options regarding bond selection.
This article provides a guide to the different types of bond investments available to local investors.
Reasons to invest in bonds
First, let me explain why you should consider investing in bonds.
A bond is a bond issued by a borrower, such as a government or a corporation. They pay the lender a coupon at a specified rate for the term of the loan.
of recurring fixed payouts This is why income from bonds is preferred by some income investors and retirees as it creates a steady stream of income. Usually semi-annually he is paid a coupon for the life of the bond at regular intervals.
bonds too means of capital conservation This is because, unlike stocks, there is some certainty of par value redemption at maturity (unless the bond issuer defaults on its payments).
Finally, bonds can be used as follows: means of diversification It is included in an equity-intensive portfolio because it generally has a low correlation with equities. It also acts as a portfolio stabilizer in recessions, given the stable income from coupon payments and the potential for prices to rise as investors switch from stocks to bonds and prices rise.
different types of bond investments
Below are the different types of bonds available to retail investors in Singapore.
#1 Singapore Savings Bond (SSB)
The Singapore Savings Bond (SSB) was first launched in October 2015 and was intended to act as a vehicle to encourage and support Singaporeans to save for the long term. These are one of his three types of Singapore Government Securities (SGS) issued by the Singapore government and available to retail investors.
SSBs have a 10-year term and a unique “step-up” interest rate feature, meaning that the longer you hold, the higher the interest rate you earn. Additionally, SSBs can be redeemed at any time prior to maturity with prorated interest without capital loss. SSB minimum investments are in multiples of $500, with individual caps of $200,000. Interest on each SSB issuance is payable every six months.
You can purchase SSB issued every month. Mass website, as long as you are 18 years of age or older, have a personal central depository (CDP) and bank account with one of three local banks (DBS/POSB, OCBC, and UOB). Each new application or redemption must be made through the internet banking portal or the respective bank’s ATM and will incur a $2 transaction fee.
Finally, SSB is allocated on a quantity cap basis. In other words, the allocation depends on both the individual limit (i.e. $200,000) and the issuance cutoff amount.
For example, in the August 2022 and September 2022 issues, SSB quantity limits were $9,000 and $13,000, respectively, due to oversubscription. This means that each applicant can only get up to $9,000 and he only $13,000, even if he applies for more.
This could limit investors who want to invest more in bonds.
Also Read: Team SSB or SGS?
#2 Treasury Bills (T-Bills)
government bond (or T-bill) is another type of SGS with no investment size limit, allowing you to invest more than $200,000. It also has the shortest loan term of either 6 months or 1 year among all SGS.
Treasury discount bills, which are zero-coupon bonds, are issued at a discount (based on the interest rate) to their face value, so no coupon is paid. Nevertheless, you will receive the par value of the Treasury Discount Bill at maturity. The yield (discount) on treasury bills is set by a flat-price auction based on the highest yield (or cut-off yield) of successful competitive bids.
T-bills can be purchased by both institutions and individuals, including non-residents over the age of 18. The minimum T-bill investment is a multiple of $1,000, with a non-competitive bid limit of $1,000,000 for each auction. A T-bill can be purchased using cash, the Supplemental Retirement Plan (SRS), or the CPF Investment Plan (CFPIS).
To apply for a T-bill, you will need a bank account at a local bank along with your CDP account. Similar to buying SSB bonds, you can buy T-bill through internet banking portals or local bank ATMs. However, you may need to go to the respective head offices of these banks when it comes to sales. Alternatively, you can trade on the FSMOne platform which offers one of the largest bonds in Singapore.
If you invest in Treasury Bills, you must accept reinvestment risk. Given the bond’s short tenor, your next T-bill investment may not enjoy the same high (or low) yield.
#3 Singapore Government Securities (SGS) Bonds
One way to reduce reinvestment risk is to buy longer term bonds such as SGS bonds.SGS Fixed Income now includes market development, infrastructure and Green SGS (infrastructure)The rest of the terms are the same except for the purpose of using the funds.
SGS bonds are issued for terms of 2, 5, 10, 15, 20, 30 and 50 years with coupons paid every 6 months. These bonds are issued monthly. Publication calendar Available on the MAS website.
Similar to T-bills, SGS bonds will be sold through a flat price auction. However, the maximum quota for each SGS bond application under non-competitive bidding is higher at $2,000,000. SGS Bonds can be purchased by individuals, including foreigners aged 18 and over, using cash, SRS or CPFIS. The minimum investment amount for SGS Bonds is a multiple of $1,000.
You can apply for new issuances of SGS bonds directly through your local bank ATM or internet banking portal, or trade them on the secondary market like listed shares at any time through stock brokers on the Singapore Exchange (SGX). However, SGS bonds are sometimes thinly traded on his SGX, which can lead to wider spreads. This means that when buying or selling SGS bonds on SGX, there can be a large difference between bid and ask prices.
can also be used to buy or sell SGS Bonds. FSM OneUnlike trading on SGX, FSMOne can offer better liquidity and spreads. In addition to relying on stock exchanges, FSMOne also works with primary dealers (such as local banks) to tap into the wholesale bond market so that it can offer more competitive prices.
Additionally, you only need to pay a processing fee of 0.1% or a minimum of $10. FSM One Account, which is one of the lowest trading rates. As an account holder, you also have access to the following services: Dedicated page It provides a list of all SGS bonds, their performance and a calculator to determine the potential total return from buying or selling at current prices.
sauce: FSM One (SGS bonds)
#4 Retail bonds listed on SGX
Alternatively, investors can purchase bonds issued by companies, also known as corporate bonds. He has two ways of trading corporate bonds in Singapore. One method is retail bonds that trade in small lots and as low as $1,000.
For example, well-known retail bonds include the Astraea series and SIA bonds. Maturities for retail bonds vary by issuer. Similar to stocks, investors can purchase these retail bonds at the initial public offering (IPO) stage at the par value of the bonds at the time of issuance. To buy, you need a brokerage account and apply through his ATM at your local bank or an internet banking portal. Similarly, these retail bonds can be sold on the secondary market through the Singapore Exchange or on trading platforms such as: FSM One.
You can also take advantage of purely informational sites like bond supermarketnot only provides excellent information on the wide selection of bonds available for trading in Singapore, but also presents them in more readable graphics with easy-to-understand graphics.
Best of all, access to information on Bondsupermart is free, making it a great starting point to begin your research on bonds. Learn more about our latest bond issuances, including: Astrea 7 on the Yield Hunters Podcastinvites experts to explore different market trends and themes in the fixed income sector.
#5 Wholesale bonds (over-the-counter bonds)
Wholesale bonds are another form of corporate bonds, except they are distributed only to institutional or accredited investors. They trade at a high price of at least SGD$250,000 (or US$200,000) per lot and can only be bought and sold over-the-counter (OTC). Therefore, they are also called “OTC bonds”.
Similar to retail bonds, wholesale bonds also have maturities that vary by issuer, ranging from as short as 3 years to as long as 10 years or more. Given the high investment volumes and small client base, these wholesale bonds are typically reserved for private banking clients, and daily price details were not readily available. Therefore, retail investors typically traded wholesale bonds with the help of intermediaries such as banks.
But it’s no longer the only way.Retail investors can now obtain fixed income information through: bond supermarket Make informed investment decisions independently with no subscription fees. The quoted price for each bond is displayed transparently, removing the opacity normally associated with such bonds. Investors have access to an overview of each bond, its yield- and price-based performance since inception, as well as bond calculators to help determine investment costs and overall returns.
sauce: Bondsupermart – Astraea IV 4.35% (price/yield chart)
Additionally, these investors can also invest in a list of bonds selected from small lot sizes ranging from 5,000 to 5,000. bond expressThis allows investors to diversify their wholesale bond portfolios without increasing their investment spending.
sauce: bond supermarket
Access the opaque bond market with Bondsupermart
Fixed income markets used to be less transparent and had a higher level of inefficiency than the stock market, making it difficult to find information related to fixed income. bond supermarket Empowering investors to gain more insight and access an extensive list of bond issuances.
You can select your preferred bond based on various filters such as issuer, bond type, coupon rate, and years to maturity. It also gives you access to an array of customized tools such as his Portfolio Builder tool from Bondsupermart. This helps you build a customized bond portfolio to achieve your desired passive income.
sauce: bond supermarket
bond supermarket It is also a useful vehicle for investors to gain insight into ongoing fixed income news, the latest fixed income issues and share their investment views. Connect with Bondsupermart and get the latest directly from these social media channels Facebook; twitter; When telegramYou can also read them Bonds page 101 For introductory information on fixed income investing, listen to our podcast series. yield hunter, Learn more about the latest market trends and themes in the fixed income space.