Singapore Saving Bonds (SSB)
Asked by Anonymous
Asked on 12 Mar 2019
Individual foreign bonds are tricky. A foreign bond fund might be better, and they provide said returns with greater diversification, a higher range of credit ratings and its cheaper and easier for them to account for the forex risk.
Emerging market bonds are a good investment, if you can use ETFs. The main thing to consider when investing in EM bonds is currency volatility. The currency volatitlity is a problem with bonds because bonds themselves are not volatile, so currency changes can wipe out your gains. There are 2 ways to avoid/manage this: 1. Go for USD-denominated debt. It means the country is borrowing in USD, so you dont have worry about local currency. 2. Go for USD-hedged fund. The country is borrowing in local currency, but the fund is hedging the currency risk.
I prefer option 1, but sometimes you can only choose what is available in the market.
If foreign bonds give you a better value per interest payment and after currency rate adjustments, then yes, they can be a very good investment as well! especially with regards to strong emerging economies who have a strong, steadily appreciating currency due to strong demand for their exports/ currency for investments. 1 Example in 2017 was Thailand, that was the biggest winner for emerging economies. This year, Philippines and their strengthening pesos are looking like a good investment opportunity, you could look more into that!
High interest rate % + appreciating currency/steady currency exchange = better value!
(Not qualified Advisor)
I noticed that too, but don't really have enough funds, time & expertise to go into the details of foreign bonds. So last year I decided to buy a Unit Trust focusing on foreign bonds, that gaves fixed monthly dividends. The banker that sold this to me, repeatedly reminded me that this is a high risk investment. However it would be better than me putting my money in 2-3 bonds.
Agree with Luke on the advantages of a foreign bond fund. Plus it is tracked in Sing dollar, so don't feel the pain of exchange rate (doesn't mean it don't exist).
on 15 Mar 2019
You have to consider 2 way exchange rates fluctuations too, unless you intend to use the foreign currency in future.
You change SGD to foreign currency, you lose some in fees or exchange rates.
Then you change back to SGD, you also lose some in fees or exchange rates.