facebookShould I go for Short Term or Long Term bonds? Any recommendations based off today's climate? - Seedly
Seedly logo
Seedly logo
 

Advertisement

Anonymous

04 Dec 2019

Should I go for Short Term or Long Term bonds? Any recommendations based off today's climate?

Which duration of SSBs would you recommend? If I were to mix how should the allocation be?

4

    Discussion (4)

    What are your thoughts?

    Hmmm techincally speaking as what Mr Hariz as mentioned, the duration of SSBs are 10 years. But let's say hypothetically speaking you want to plan for say, 5 years only, you still can get SSBs given the liquidity of SSBs - you can whenever you like, pull out of SSBs with prinicpal guaranteed, just that your Yield won't be the stated yield after 10 years, it will be a smaller yield as SSBs have "accelerating yield". This means that if the bond is issued at say - 2.5% yield after 10 years, you start off at maybe 2% yield in year 1, ending off at 2.9~3% yield in year 10, and your yields over the years average out to get your 2.5%. So technically speaking, it is possible to use SSBs - but just that it is horribly inefficient to do so in my opinion for any duration below 10 years!

    If not, i suggest you go for long term bonds - why I say this is because of the possible down turn we may be experiencing soon. Most analysts say we are currently in the late stage of our business cycle - not peak , but late, and recently the US yield curve inverted for the first time since 2007, which preluded the previous market crash. though the yields aren't exactly "wow" right now at about 2.5% for SG 30y bonds and 2.96% for US 30y bonds, these bonds are safe because they are from countries with a good ability to pay for their debt - SG because we have a good amount of reserve, US because they are printing the backbone currency for financial markets.

    Buying long term bonds will lock in the interest rates today, and allow you to be able to get good interest payments in the downturn. However since US 2y to 5y yields have dropped below the shortest term bond yield of 1 month, it may be better to invest in Singapore bond for now - there won't be currency exchange headaches if you invest in SG 10y bonds since they pay out in SGD! The picture attached is from the US Treasury website that shows US treasury yields everyday- look at the 2 - 5 years, they are lower than even the 1M treasury rate! this means more people are willing to take the time risk factor of locking in money for these longer bonds, rather than the 1M, because they see it as a good hedge for whats to come! https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield

    TLDR: buy LT bonds is my suggestion - by LT meaning more than 1 year. You most likely will see a recession in your lifetime sooner or later, and there are warning signs present right now that may suggest it is soon. my suggestion - 3 to 5y is a good idea, if not, 10 is also okay! If you are going 10: look into perhaps SSBs if you like the better liquidity, if not SGS will payout slightly more due to the lack of liquidity!

    Reply

    Save

    Share

      Hi Anon,

      Apart from “today’s climate” you may also want to consider your personal financial outlook ie. studies, wedding, housing etc.

      Singapore Savings Bond (SSB) is 10 years.

      Alternatively, you may want to look into Singapore Government Securities (SGS) bond / Singapore’s T-bills. They offer several holding terms 1yr, 5yrs, 20yrs etc.

      *Disclaimer: Please perform your own appropriate due diligence.

      There is one SGS bond that is currently open for application

      • until 27 March, 12pm
      • maturity on Feb 2023.
      • You can apply it through the “common” eg: DBS/POSB Ibanking/ ATM,
      • Min $1k (excluding fees).
      • Open for both competitive and non-competitive bid

      (Personally if I were to bid I would lean towards non-competitive bid if I really want the bond).

      • But do note that this is a reopen bond (SGX code: CMHS, last ask price: 99.30).

      Product sheet link: http://www.sgs.gov.sg/~/media/SGS/SGS%20Announcements%20pdf/Bonds%20PDF/2019/N518100E%20Reopen.pdf

      Upcoming SGS bond application just FYI and to show the different in holding terms:

      18 Apr 19 -10 yr-reopen

      22 May 19 -2yr-reopen

      19 June 19 -20yr-new

      Alternatively, you can bid on SGX after the results (but not much movement for SGS bond) or consider ABF SG Bond ETF (A35) / XT SingGovBond SG$ ETF (KV4).

      For T-Bill next will be on:

      19 Jul 19

      For further details (pros & cons), I am not sure if there is anything here yet, you can use the search bar above. If not hopefully someone picks up to explain in depth.

      Reply

      Save

      Share

        Depends on the role of bonds in your portfolio (hope you do have a portfolio?!)

        If you are in bonds...

        Read 2 other comments with a Seedly account

        You will also enjoy exclusive benefits and get access to members only features.

        Continue with Facebook
        Sign in with Apple

        Sign up or login with an email here

        Write your thoughts