Singapore Government Securities (SGS)
Singapore being a politically stable and economically healthy country, poses as an attractive investment avenue for both local and international investors. The government issues bonds to investors and are known as Singapore Government Securities (SGS). With good governance and proper budgeting, Singapore Government does not need to meet budget deficits by selling SGS. This was mentioned in Monetary of Singapore guide to SGS:
“In general, governments in most countries issue debt securities to raise funds needed to pay off maturing debt and finance their operations and development expenditure. However, since the Singapore Government conducts a prudent fiscal policy and has consistently run budget surpluses over the years, it does not need to borrow to finance its expenditure.”
Hence, the risk of Singapore Government defaulting the loan is much lower than countries who raise money through issuance of bonds.
There are 2 types of SGS offered:
Treasury Bills (< 1 year to maturity) – They can have a maturity of 3, 6 or 12 months.
Treasury Bonds (> 1 year to maturity) – They can have a maturity of 2, 5, 7, 10 or 15 years.
Buy SGS through 2 markets:
Primary
This is done through an auction system. Anyone can participate in SGS auctions, but all bids must be submitted through any one of the SGS Primary Dealers. Retail investors rarely invest in SGS through the Primary market as Primary Dealers would only entertain big bidders like funds and companies. The Primary Dealers are as such:
Bank of America
Barclays Bank
Citibank
Credit Suisse First Boston
Deutsche Bank
DBS Bank
HSBC
OCBC
RBS
Standard Chartered
UOB
Secondary
Following their primary issuance at auctions, SGS are traded in the secondary market “over-the-counter”. The minimum denomination of SGS Treasury bills and bonds is S$1, 000. Unlike the past where physical bond certificates are given, SGS are now scripless. All ownership of SGS are reflected as accounting book entries.
I would recommend retail investors to buy SGS over the Internet through fundsupermart.com and poems.com.sg as they are accessible at the comfort of your home. But of course, you must have an account with them. Fundsupermart charges 0.1% for custodian fees while POEMS earn through the bid/ask spread difference (which is equivalent to 0.1% too). It is also important to note that POEMS only offer Treasury Bills through the internet platform. They do offer bonds but arrangement has to be made with them for the purschase and a minimum of S$100,000 is required.
Besides cash, investors can use the Central Provident Fund (CPF) Ordinary and Special Accounts to purchase SGS bonds, but not Treasury bills. Like investment in stocks and funds, a CPF Investment Scheme (CPFIS) account is needed to buy/sell the bonds.
Selecting a Treasury Bill/Bond in the Secondary Market
The first thing to look at is the years to maturity of the SGS. The longer the years to maturity, the higher the yield the SGS has. If you want to hold till maturity, the SGS that you buy must mature within your investment horizon. If you expect bond prices to increase, you may not be restricted by it as you would sell it before it matures.
The second key is to look at the yield to maturity – this is the actual interest that you will be gaining each year based on the price of the SGS you paid. You must understand that bond price changes while its coupon rate remain constant. For e.g. A bond is first issued at $1000 with a coupon rate of 1%. Overtime, bond price became cheaper to $950 while coupon rate remains at 1%. You actually get a discount if you buy it now. Your yield to maturity (per annum) is 1.05% (1000/950 x 1%). Hence, by looking at yield to maturity, you can tell whether your investment is bang for bucks.
External links to related topics:
S’pore Govt Bonds In A Nutshell by Wong Sui Jau
How to buy SGS by MoneyTalk
Using POEMS to buy SGS by MoneyTalk
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