30 Sep The Curious Case Of the Singapore Savings Bonds
There were 19,505 successful applicants of the Singapore Savings Bonds (SSBs) who would invest a collective sum of S$413m, or an average of S$21,174 each.
This is an under-subscription in many people’s eyes considering Monetary Authority of Singapore catered S$2 billion to S$4 billion for the first few SSB issues. There was an expectation of high demand…
Why is there an under-subscription?
Alfred Chia from SingCapital said in an interview that it could be because the investors need Central Depository accounts and not everyone has one. It would take a while for investors to open their accounts to hold the SSBs. He might be right as this news report said that SGX saw an average of 8,500 new CDP accounts per month since July 2015, up from 6,500 previously.
My 15 HWW shared his thoughts on this issue and he suggested some plausible reasons such as investors expect higher interest rates in the future (because of Janet Yellen) and lack of confidence in the Singapore Government securities (because of protesters against CPF).
In such cases, without more data, we are unable to really tell the cause/s of this situation. And it could be a temporary issue and the subscriptions could indeed go up.
I would like to offer an alternative view point in this article. My hypothesis is that Singaporeans do not have a culture investing in bonds directly.
Let us look at the household’s assets to determine what Singaporeans typically invest in. According to Singstat’s household sector balance sheet, ending 2015 second quarter, the breakdown of assets are as such:
- Property: 46%
- Currency and Deposits: 20%
- CPF: 16%
- Life Insurance: 8%
- Listed shares: 5%
- Unlisted shares (private companies): 2%
- Unit Trusts and Funds: 2%
- Pension Fund: 1%
Based on the above, we can consider CPF, Life Insurance and Unit Trusts to be bond-related. Else, there isn’t any mention of bonds in the household wealth. It isn’t wrong for a younger person to have stocks and less or no bonds in his investment portfolio as long as he can take the volatility. However, we know that our population is aging and elders should see more bonds in their portfolio as they go into retirement years. This clearly wasn’t the case based on the breakdown of household balance sheet.
Why is that so? Is it a lack of awareness about bonds?
Actually the SSB isn’t the first ‘flop’ when it comes to encouraging Singaporeans to buy bonds. The Singapore Government Securities (SGS) Bonds were made available for secondary trading on SGX since 8 Jul 2011 and you can take a look at the almost non-existent trading volume pictured below (screen shot from sgx.com on 29 Sep 2015).
Maybe it is because our Singapore Government has done a good job to secure a triple-A rating such that the bond yields become too low for many investors’ appetite.
Maybe the retail investors are more than happy to invest in corporate bonds giving higher yields at 5% or more. But there aren’t many choices unless you are an accredited investor with a wealth banker dishing those corporate bonds to you. As a retail investor, there are only 7 corporate bonds available on SGX (screen shot from sgx.com on 29 Sep 2015):
I tend to believe it is a demand issue – investors are generally not keen on bonds. A heuristic evaluation of the investors I meet tend to prefer properties and stocks. Even so, property investments have slowed with the cooling measures in place and stocks trading volume on SGX hasn’t been encouraging at all.
Are Singaporeans not investing at all at this moment?
Photo credit: Slava