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5 Reasons Why It Makes Sense To Invest In Singapore Savings Bonds (SSBs) In 2022

SSBs are the closest to a “free lunch” in the investment space

Investor demand for Singapore Savings Bonds (SSBs) has been increasing in 2022. Applications for the May issuance more than doubled compared to the January 2022 issuance.

This comes as no surprise, as market uncertainty has pushed global stock market prices down to bear market territory. Alternative assets like cryptocurrencies have also been rattled by the recent collapse of TerraUSD, or UST. Before its demise, it was the third biggest stablecoin by market capitalisation.

That leaves investors with very few safe investment options. As an investor, whether you wish to ride out the storm or seek a safe and stable long-term investment, the Singapore Savings Bond is something you should take a look at in 2022.

Here are 5 reasons why SSBs make sense as an investment in 2022.

#1 First-Year Yields On Singapore Savings Bonds Are Rising 

The short-term rates, or first-year yields, of the Singapore Savings Bonds are watched closely by investors and have started to rise in 2022.

Investors typically benchmark the first-year yields against the fixed deposit rates offered by banks, as this forms the basis of comparison for short-term liquid (cash) holdings.

After dropping to a low of 0.24% for the September 2020 issuance (issue code: GX20090H), the first-year yields are now climbing above the 1% threshold, attracting investors once again. If you apply for the June 2022 issuance (issue code: GX22060F), you will receive 1.43% as the first-year interest rate. This is higher than the current bank fixed deposit rates, which range between 0.6% and 1.33%.

With interest rates expected to rise further this year, SSBs may continue to offer investors relatively high first-year yields.

Read Also: [2022 Edition] Complete Guide To Buying Singapore Savings Bonds (SSB) 

#2  Average 10-Year Yields On Singapore Savings Bonds Are Higher Than CPF OA Savings

Unlike typical bonds that have a fixed interest rate throughout the loan tenure, the interest rates on the Singapore Savings Bonds will increase (step-up) each year. Therefore, the longer you hold the Singapore Savings Bonds, the higher the interest you will earn.

The average 10-year interest rate in this latest June 2022 issuance is 2.53%, which is slightly higher than the CPF Ordinary Account interest rate of 2.5% per annum. The last time the average 10-year rate was higher than 2.5% was in 2018.

With the average long-term (10-year) interest rates trending higher in 2022, it could be an opportune time to invest in SSBs as a means of portfolio diversification. Treating SSBs as cash equivalents while achieving a 2.5% or higher return may entice more risk-averse investors. Additionally, it could also be enticing for savers who hold excess savings in their Supplementary Retirement Scheme (SRS) account to invest in SSBs. It could provide them with low risk and a steady return.

#3 Singapore Savings Bonds Are A Safe Investment In An Uncertain Environment

Uncertainty over the prolonged war between Ukraine and Russia and the pace of interest rate hikes has affected the stock market’s performance in 2022. The S&P500 and Nasdaq, two popular US benchmark indexes, have fallen by around 20% and 30%, respectively, since their highs in 2021. Other asset classes such as bonds, gold, and even cryptocurrencies were not spared from the recent market volatility and correction.

For the more risk-averse investors, Singapore Savings Bonds offer safety from market volatility.

The Singapore Savings Bond is backed by the Singapore government, which has been accorded the strongest credit rating by international credit rating agencies. Therefore, as far as the different types of investments go, SSBs are amongst the safest possible investments to hold.

Read Also: 7 Questions To Answer Before You Invest Into The Singapore Savings Bonds (SSB) 

#4 There Is No Re-Hedging Risk

The Singapore Savings Bond has no early redemption fees or penalties. This makes it a good investment product to park your excess cash to ride out the market volatility and still be able to redeem it when the need arises.

This feature is also useful in this current climate of rising interest rates, as you can always buy-in to a higher interest-giving bond without any penalties.

However, you need to take note that you can only receive the redeemed amount by the second business day of the following month.

#5 MAS Is Issuing More Singapore Savings Bonds In 2022

For the whole of 2021, the size of the Singapore Savings Bonds issuance was $100 million per month. This changed at the start of 2022, when the size of the January issuance was increased to $150 million. As a sign of growing interest in the SSB, the offer size has now more than doubled to $350 million for the latest issuance in June 2022.

This shows that SSBs are becoming popular as an investment product once again in 2022, and it could pay to follow the crowd this time. Unlike other investment products, MAS is willing to expand the SSB offer size as demand grows. This increases the chance for investors to get their full allotment for which they apply.

You can invest in SSB for as little as $500 and up to a cap of $200,000 per person.

Read Also: Endowment Plan VS Fixed Deposit VS Singapore Savings Bonds (SSB): Which Is More Suitable For You? 

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