The 10-year average return for the October tranch is lower than that for September, which was 3.1%
SINGAPORE Savings Bond (SSB) yields continued to fall in the latest tranche, ahead of the anticipated rate cuts by the US Federal Reserve in September.
The October tranche, which opened on Monday (Sep 2), is offering a first-year interest rate of 2.59 per cent, and a 10-year average return of 2.77 per cent.
In comparison, the September issuance offered a first-year interest rate of 3.06 per cent and a 10-year average return of 3.1 per cent.
SSBs take their interest rates from the average yields of Singapore government bonds from the month before.
They are subject to adjustments, however, to ensure that interest rates do not dip over time when the yield curve is inverted – which is when yields of short-dated bills exceed those of longer-dated bonds.
The government may make adjustments to ensure that returns do not step down before the SSB matures, and provide investors with a return that increases across their holding periods.
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Principal Asset Management said in a note that bond yields have historically declined ahead of Fed rate cuts, reflecting market anticipation of easier monetary policy.
“This pre-emptive decline in yields can create a favourable environment for investors to extend duration, capturing potential price gains and enhanced returns without waiting for the Fed to formally adjust its policy stance,” its research team said.
The October issuance has some S$800 million on offer and closes on Sep 25. It will be allotted on Sep 26; successful applications will be issued on Oct 1.
SSB demand fell in the last few tranches in line with declining yields. The September tranche received a total of S$829.4 million in applications, for the S$900 million on offer.
