Beginner’s Guide To The Different Types Of Bond Investments In Singapore

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Bonds are lately in hot demand by local investors with the rise in interest rates. Unlike equities, which are usually listed on a stock exchange, there is no central exchange for bond trading. Instead, the majority of bonds, which are issued by governments and businesses, are usually traded over the counter (OTC). As they are not listed on major exchanges, investors typically have to look for their brokers to arrange for bond trades.

That is why it would be advantageous to understand the different types of bonds available in Singapore to penetrate the less transparent OTC markets and have more options when it comes to bond selection.

This article provides a guide to the different types of bond investments that are available to local investors.

Why Invest In Bonds?

Let’s first explain why we may wish to consider investing in bonds.

Bonds are debt securities issued by borrowers, like a government or a corporation. They pay coupons at a specified interest rate to lenders during the tenor of the loan.

The regular fixed payouts from bonds are why they are preferred by some income investors and retirees to create a steady stream of income. You are paid a coupon for the lifetime of the bond at regular intervals, which is usually on a semi-annual frequency.

Bonds are also preferred as a means of capital preservation as, unlike stocks, there is some certainty over the par value redemption upon maturity (as long as the bond issuer does not default on payment).

Lastly, bonds can be used as a means of diversification in an equity-concentrated portfolio due to their generally low correlation to stocks. It can also act as a portfolio stabiliser in an economic downturn given the steady income from coupon payments and potential price appreciation as investors switch from equities to bonds, driving up its prices.

Different Types Of Bond Investments

Following are the different types of bonds that are available to retail investors in Singapore:

#1 Singapore Savings Bonds (SSBs) 

The Singapore Savings Bonds (SSBs) were first launched in October 2015 and were meant to serve as a way to encourage and help Singaporeans save for the long term. They are one of the three types of Singapore Government Securities (SGS) that are issued by the Singapore government and are available to retail investors.

The SSBs have a 10-year tenor and a unique “step-up” interest feature that ensures you earn a higher interest rate the longer you hold them. Additionally, you can redeem the SSBs at any point in time before the maturity period with pro-rated interest and without any capital loss. The minimum investment commitment for the SSBs is in multiples of $500, up to an individual limit of $200,000. Interest from each SSB issuance will be paid out every six months.

You can purchase the SSBs, which are issued every month and also announced on the MAS website, as long as you are above 18 years old, have an individual Central Depository (CDP), and a bank account with any of the three local banks (DBS/POSB, OCBC, and UOB). Each new application or redemption must be done through the internet banking portals or ATMs of the respective banks, and will cost $2 in transaction fees.

Lastly, the SSBs are allocated on a quantity ceiling method, which means your allocation would depend on both the individual limit (i.e., $200,000) and the cutoff amount of the issue.

For example, during the August 2022 and September 2022 issue, due to oversubscription, the quantity ceiling for the SSB was $9,000 and $13,000 respectively. This means that even if they applied for more, each applicant can only get up to $9,000 and $13,000.

This may limit investors who may wish to invest more in bonds.

Read Also: Are You Team SSB or SGS?

#2 Treasury Bills (T-Bills)

Treasury bills (or T-bills) are another type of SGS with no investment size limitations, allowing you to invest any amount greater than $200,000. They also have the shortest loan tenor of either 6 months or 1-year amongst all the SGS.

T-bills, which are zero-coupon bonds, do not pay out any coupons as they are issued at a discount (based on the interest rate) to their face value. Nevertheless, you would receive the full-face value of the T-bill at maturity. The yield (discount) on T-bills is set by a uniform price auction, which is based on the highest accepted yield (or cut-off yield) from the successful competitive bids.

The T-bills can be bought by both institutions and individuals, including non-residents over 18 years of age. The minimum investment commitment for the T-bills is in multiples of $1,000, and up to a $1,000,000 application limit for non-competitive bids for each auction. You can buy the T-bills using your cash, Supplementary Retirement Scheme (SRS), or through the CPF Investment Scheme (CFPIS).

To apply for the T-bills, you need a bank account with any of the local banks along with a CDP account. Similar to buying the SSB bonds, you can purchase the T-bills through the internet banking portals or ATMs of the local banks. However, when it comes to selling, you may need to visit the respective main branches of these banks. Alternatively, you can also trade on the FSMOne platform, which has one of the largest bond offerings in Singapore.

When you invest in the T-bills, you have to accept the reinvestment risk. Given the short tenor of the bond, you may not be able to enjoy the same higher (or lower) yield on your next T-bill investment.

#3 Singapore Government Securities (SGS) Bonds

One way to reduce the reinvestment risk is to purchase longer-dated bonds, such as the SGS bonds. Currently, there are three categories of SGS bonds – Market Development, Infrastructure, and Green SGS (Infrastructure). Aside from their difference in the objectives of the use of funds, the remaining terms are the same.

The SGS bonds are issued in 2, 5, 10, 15, 20, 30, and 50 year-tenors with coupons paid every 6 months. These bonds are issued monthly according to the issuance calendar available on the MAS website.

The SGS bonds, similar to T-bills, are sold via a uniform price auction. But the maximum allocation limit for each SGS bond application under non-competitive bids is higher at $2,000,000. The SGS bonds can be bought by individuals, including foreigners over 18 years of age using Cash, SRS, or CPFIS. The minimum investment commitment for the SGS bonds is in multiples of $1,000.

You can apply for new issues of SGS bonds directly from the local banks’ ATMs and internet banking portals or trade them anytime on the secondary market like a listed stock through a securities broker on the Singapore Exchange (SGX). However, you may find the SGS bonds are thinly traded on the SGX, which may result in a wider spread. This means when you buy or sell the SGS bonds on SGX, there could be a large difference between the bid and the ask price.

You can also purchase or sell SGS bonds using FSMOne. Unlike trading on the SGX, FSMOne can provide better liquidity and spreads. Beyond relying on the stock exchange, FSMOne also taps on the wholesale bond market by working with primary dealers (such as the local banks), enabling it to offer more competitive prices.

Moreover, you only need to pay a processing fee of 0.1% or minimum $10 with an FSMOne account, which is one of the lowest trading rates. As an account holder, you will also have access to a dedicated page that provides a list of all the SGS bonds, their performance and a calculator to determine your potential total return from buying or selling at the current price.

Source: FSMOne (SGS Bonds)

 

#4 Retail Bonds Listed On SGX

Alternatively, investors can also buy bonds issued by corporations, which are also known as corporate bonds. There are two ways corporate bonds are traded in Singapore. One way is through retail bonds, which are traded in smaller lot sizes for a minimum of $1,000.

For example, some of the well-known retail bonds are the Astrea series and SIA bonds. The maturity period for retail bonds depends on each issuer. Similar to stocks, investors can buy these retail bonds at an Initial Public Offering (IPO) stage at the face value of the bond during an issuance. To buy, you would need a securities brokerage account and have to apply through the local banks’ ATMs and internet banking portals. Similarly, you can sell these retail bonds on the secondary market through the Singapore Exchange or on a trading platform like FSMOne.

You could also leverage on a purely informational site like Bondsupermart, which not only offers superior information on a wide selection of tradable bonds in Singapore but also displays them in a more reader-friendly manner with easy-to-understand graphics.

Source: Bondsupermart – Astrea IV 4.35%

Source: Bondsupermart – Astrea IV 4.35%

Above all, access to the information on Bondsupermart is free and forms a great starting point to begin your research into bonds. You can learn more about the latest bond offerings, such as the Astrea 7 in their Yield Hunters Podcast, where they invite experts and explore the different market trends and themes in the fixed income space.

#5 Wholesale Bonds (Over-The-Counter Bonds)

Wholesale bonds are the other form of corporate bonds except that they are distributed only to institutional or accredited investors. They are traded in larger denominations of at least SGD$250,000 (or US$200,000) per lot and can only be bought and sold over the counter (OTC). Hence, they are also termed as “OTC bonds”.

Similar to retail bonds, the maturity period on wholesale bonds also depends on the issuer, which can be for a short duration of 3 years to a longer duration of 10 or more years. Given the higher investment sum and smaller scale of clients, these wholesale bonds were usually reserved for private banking clients, and daily pricing details were not readily available. Hence, retail investors usually traded wholesale bonds with the help of a middleman such as a bank.

But that’s no longer the only way. Retail investors can now get bond information through Bondsupermart without subscription fees and are empowered to make their own informed investment decisions. The indicative prices of each bond are transparently displayed, removing the opaqueness that is typically associated with such bonds. Investors will have an overview of each bond, its performance based on yield and price since its inception, and even a bond calculator to help them determine the cost of investment and overall returns.

Source: Bondsupermart – Astrea IV 4.35% (Price/Yield Chart)

Additionally, these investors can also invest in a selected list of bonds from smaller lot sizes as low as 5,000 through Bond Express. This allows investors to diversify their wholesale bond portfolio without increasing their investment outlay.

Source: Bondsupermart

Access The Opaque Bond Market With Bondsupermart

The fixed income market used to be less transparent with more levels of inefficiency than the equity market, making it difficult to find bond-related information. Bondsupermart enables investors to gain more insight and access an extensive list of bond offerings.

You can select your preferred bonds based on a variety of filters, such as issuer, bond type, coupon rate, and years to maturity. You will also have access to a suite of customised tools, such as Bondsupermart’s Portfolio Builder tool, which will help you build a customised bond portfolio to achieve your desired passive income.

Source: Bondsupermart

Bondsupermart is also a conducive avenue for investors to get insights on ongoing bond-related news, latest bond issues and share investment views. Connect with Bondsupermart and get first-hand updates via these social media channels Facebook; Twitter; and Telegram. You can also read their Bonds 101 page for introductory bond investing information and listen to their podcast series, Yield Hunters, to learn more about latest market trends and themes in the fixed income space.

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