Martin Lee @ Sg
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Singapore Government Securities Application Via Atm

In the past, investing in Singapore Government Securities (SGS), otherwise known as Singapore Government Bonds or T-bills, require either a trip to a local bank for buying new issues, or transacting through a secondary dealer (eg a stock broker) for buying or selling of Government Bonds that were already in the market.

SGS are the safest products around as your capital is only at risk if the Singapore Government defaults. These debt instruments require a minimum investment of just $1000 and can be bought using both cash and CPF.

However, take note that if you sell them before maturity, you might get back more or less than your initial capital. This is because the price of bonds has an inverse relationship to the movement of interest rates. When interest rates goes down, the price of bonds goes up, and vice versa. The longer the duration of the bond, the greater this effect will be.

Starting from tomorrow, application for SGS can be done in a more convenient manner. All you need is a valid CDP account and you will be able to apply for new issues at the ATMs of the three local banks.

The yield of recent SGS issues are as follows:

3-month T-bill: 0.25% p.a.

1-year T-bill: 0.35% p.a.

2-year bond: 0.65% p.a.

5-year bond: 1.44% p.a.

7-year bond: 1.75% p.a.

10-year bond: 2.58% p.a.

Some of the yields of the SGS are at pretty low levels now. (You can view current and historical prices at the MAS data room)

For example, the 3-month T-bill was giving 2-3% p.a. as recently as 2006-2007. I remember it being a favourite instrument for some people to park their temporary cash. The only thing was that it was a hassle making a trip to the bank every few months. With the ATM system in place, things would be much more convenient.

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13 comments
Lyn says 9 years ago

hi
alfred,
buying frm fundsupermart is good as u can place ur order at the stipulated price that u want. However the only cons is u hve to pay a 0.05% custodian fee and this is deducted from ur coupon interest.

Then if u buy from the bank, to be honest with u, not all the tellers at our banks know how to execute this kind of order and on 1 occasion I have to teach the staff how to fill up the forms cos u need to pay accrued interest when u purchased it post coupon period which all of us would.
The only thing is once the price bought, that is all the costs involved and u can happily wait for the semi- annual coupon to be credited to ur bank a/c

Having said that , u must note that buying fm bank u hve no choice of the price and once the staff call the treasury dept that price u gotta take and also their spread is very wide. For fundsupermart, the spread is narrower so even if i hve to pay the custodian fees, it is still ok.

btw, i still hve some holdings with the banks as well as fundsupermart and i’m gg to top up more for my retirement.

Lion investor: So far i tried the atm , there always isnt any for me to purchase? So i m still confused what is actually offered on the atm? Any idea?

Reply
wiseinvestor says 9 years ago

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Reply
Lyn says 9 years ago

hi Lion Investor,
Txs for this info. I used to do this at local bank and fill up so many forms and then after a few yrs , I transact thru Fundsupermart cos I can put the price that I want to buy.
May I know if we purchase at ATM, can we put a price or is it going to be done at that day closing price?
Also will there be admin fees?

Thanks

Reply
    alfred says 9 years ago

    hi

    i am keen to buy sgs bonds but not sure if i shd go thro ATMs or Fundsupermart. since you have done this before, could you kindly share your pros and cons analysis. tks

    alfred

    Reply
Data says 9 years ago

Hi Lion Investor,

I wonder if you or anyone else here have tried this new and convenient way of buying SGS, because I’m concerned about whether the banks and/or CDP charge for this service, and if so how much. Yields are so low already 🙁 Thanks!

Regards,
Data

Reply
    lioninvestor says 9 years ago

    Hi Data,

    Will go and test it out.

    Reply
    A Singaporean says 9 years ago

    I would like to find out too. POEMS currently knock 10 basis points off the yield, so an original yield of 0.26% becomes 0.16%, a 38.5% reduction.

    Reply
VSL says 9 years ago

Hi Lion Investor,

I had a look at the Daily SGS Prices at https://secure.sgs.gov.sg/apps/goto/?app=dailyPrices.

Looking at the Closing Levels, for the 2-yr product, there is a Coupon Rate of 3.625%. There is also a Yield of 0.51 thru 0.65, corresponding to various prices over a 6-day period. Pls clarify the difference between Coupon Rate and Yield? How are the two related? These two terms can be rather confusing.

If I invest $1,000, will I be getting $36.25 guaranteed dividends in a year (paid out in 2 equal instalments every 6 mths)? Thank you.

Reply
    lioninvestor says 9 years ago

    Hi VSL,

    The reason why the yield is different from the coupon is that the price of the bond is trading at 104-105% of face value.

    A simple way of looking at it is that you buy the bond at $1040-$1060, get interest of $36.25/year for 2 years, and then get back $1000 at maturity.

    The relationship between price and interest rates is explained briefly in the second half of my post here:

    http://www.martinlee.sg/preference-shares/

    Reply
      VSL says 9 years ago

      Hi Lion Investor,

      Tks for explanation of Coupon Rate, which is easier to understasnd. What I still don’t understand is how is the Yield calculated based on the Coupon Rate and the Closing Price (and/or Face Value)?

      Let’s take an example from https://secure.sgs.gov.sg/apps/goto/?app=dailyPrices. Pls look at the 2-yr product.

      Coupon Rate = 3.625% per annum
      Tenor = 2 yr
      Face Value = $100.00
      Latest Closing Price on 30-Jun-09 = $106.00
      Yield = 0.61

      How is the Yield derived from these figures? Pls show formula relating all the variables above?

      For 3-mth and 1-yr products, the Coupon Rate is not shown. Only the Yield is shown. How can I calculate the Coupon Rate? I am used to thinking in Coupon Rate as it is similar to FD rates expressed by banks. Thanks again.

      Reply
        lioninvestor says 9 years ago

        Hi VSL,

        Mathematically, the yield-to-maturity of a bond is calculated as the interest rate that would match all future cash flows to the present value.

        For the example you quoted, a very rough way to look at the yield is this.

        You pay $106 to buy the bond.

        You get coupon of 3.625% p.a. over 2 years.

        Total you get is $3.625×2=7.25

        When bond matures, gov pays you back $100.

        So the profit you make is $100+7.25-106=$1.25

        Taken over 2 years, your actual yield is about half, ie 1.25/2=0.625% p.a.

        For the 3 month and 1-year, interest is obtained by looking at the relationship between the purchase price and maturity price.

        For 1 year, yield=((maturity price/purchase price)-1 ) x 100

        That is the number you can look at to compare against the FD rates offered by the banks. The coupon rate is not so useful for this.

        Reply
          lioninvestor says 9 years ago

          Mathematically, you can calculate the yield-to-maturity using the formula on this page:

          http://www.moneychimp.com/articles/finworks/fmbondytm.htm

          Reply
            VSL says 9 years ago

            Hi Lion Investor,

            Tks for clear explanation in concise, layman’s terms. I can see clearly now.

            This is the kind of info that one expects from RMs, banks or even MAS, but never gets. We need more guys like you to educate the public on basic financial matters. Keep up the good work. Thank you once again.

            Reply
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