buying Singapore government securities, yes/no?

lzydata

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For most individual local investors, there is no real need to buy SGS. This is because you can achieve the same objectives with a higher return and negligibly higher risk, through CPF (for long-term investing) or fixed deposits (for the shorter term). CPF funds are invested in special SGS. Bank deposits up to $50k per person per bank are insured by the government. Also, neither are subject to interest rate risk while SGS is.

Today the 1-year SGS treasury bill traded at 0.81% yield and the 10-year SGS bond at 2.26% yield. The former, while higher than most banks' board rates for a 1-year FD, is lower than several banks' promotional offers, such as OCBC's 1.4% for at least $20k fresh funds. The latter is even lower than the CPF-OA rate, not to mention the SMRA rate.

However, if you do want to buy, note that individual investors do not have to put in a bid. You can make a non-competitive bid. See below for more.

Frequently Asked Questions- Individual Investors
 

Shion

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The returns are very low, some people say put the money into FD is better
 

chopra

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Yes when it leads banking rates
No when it is not ( like now )
 

lzydata

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Yeah I was looking at the rates too and fds now are even better. Who will buy sgs then? Corps?

I believe institutions, either financial institutions or institutional investors. But there doesn't seem to be any official reports or semi-official estimates of who owns SGS. Here's what I found:

Outstanding SGS bonds and bills as of end Jan 2015: $98.1b

Stats Outstanding SGS

SGS held by MAS as of 2 Feb 2015: $7.129b [7% of outstanding amount]

Stats MAS Holdings

"Singapore Government treasury bills and securities" held as of 31 Dec 2014 in their latest financial statements:

DBS: not separated out, but they reported $9.894b as of 31 Dec 2013, so I'd guess $10b. [10%]
OCBC: $10.100b [10%]
UOB: $7.757b [8%]

According to their annual report as of 31 Dec 2014:

Nikko ABF Singapore Bond Index Fund: $0.481b [0.5%]

A small player compared to banks, but SGS makes up 90% of the fund!

Kind of disappointing that I only found one third of the issuance in the expected places. Perhaps more are held by the other SGS primary dealers: Key Participants

Of course, these are the normal SGS. There is one, much bigger owner of special SGS:

From Annual Report 2013 as of 31 Dec 2013:
CPF Board: $250b

Members' balances has already increased to $275b as of end-2014 and is set to rise at an even faster pace because of higher contribution rates, higher interest rates and the higher salary ceiling.

http://mycpf.cpf.gov.sg/CPF/About-Us/CPF-Stats/CPF_Stats
 

Tornesoul

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Would buying the Nikko AM Bond Fund Index (A35) be considered a similar investment to buying bonds? Thus diversifying your portfolio? (Assuming fully equities atm)

Had some comments that it's more like buying stocks rather then bonds
 
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Shiny Things

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Would buying the Nikko AM Bond Fund Index (A35) be considered a similar investment to buying bonds? Thus diversifying your portfolio? (Assuming fully equities atm)

Yep. A35 is exactly like owning bonds (it's a fund that owns a bunch of bonds, and what you care about is what's inside the fund, not the fund itself).

Had some comments that it's more like buying stocks rather then bonds
Mechanically it is (inasmuch as you can buy it like a stock), but from the point of view of your portfolio it's equivalent to bonds.
 

Tornesoul

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Yep. A35 is exactly like owning bonds (it's a fund that owns a bunch of bonds, and what you care about is what's inside the fund, not the fund itself).


Mechanically it is (inasmuch as you can buy it like a stock), but from the point of view of your portfolio it's equivalent to bonds.

Thank you shiny :)

In a way wouldn't it be like having a bond that constantly renews it contracts (through the expiring of old bonds and purchase of new bonds) and constantly pays out coupons (divs)?

would there be any advantage to buying actual bonds as ts wants to? versus just buying the bond etf a35. (i assume a35 is more liquid)

_______________________________

EDIT: found an article on bogleheads

https://www.bogleheads.org/wiki/Individual_bonds_vs_a_bond_fund

basically buying the a35 bond fund would be like buying a rolling bond ladder with the same duration? however a bond fund would be easier for smaller retail investors due to lesser capital to diversify AND less hassle of shopping for new bonds upon each bond of the bond ladder expiring? just that there is expense ratio for the A35?

not sure if i'm correct on this

http://www.bogleheads.org/forum/viewtopic.php?p=422451
 
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Thank you shiny :)

basically buying the a35 bond fund would be like buying a rolling bond ladder with the same duration? however a bond fund would be easier for smaller retail investors due to lesser capital to diversify AND less hassle of shopping for new bonds upon each bond of the bond ladder expiring? just that there is expense ratio for the A35?

I have been thinking about this for a while. If we assume the fund buys the underlying bond on par value and hold to maturity, its correct that your principle is protected even in a bond fund. (this is what some of the people in boglehead's forum are discussing about.)

I believe the complication arises when the AP execute the orders and buy those bond on the secondary market instead of the primary market(e.g a 30 year old SGS that has turned 10 year). As such, there is a premium / discount on those bond. Meaning: if there is a premium, you will lose it when you hold to maturity. And if there is a discount, you will gain it. So the average yield to maturity should be considered is you are holding a bond fund.

So if the above argument is true, in a raising interest rate environment, when ever the fund buys into a bond at discount, you actually will gain it when the fund holds it to maturity.

A bond ladder in my opinion works the same as a bond fund, just that you get the control to buy on a primary market or secondary market. (And its really a hassle to go and monitor the bidding dates, go and the ATM and signup for it, check up the yield of the bonds if its a reopen issue etc.)

with regards to the bond fund A35: Yes. There is only a bit of expense ratio and its much better for small retail investors to buy a diversify portfolio of bonds in just a click of a button.
 
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Shiny Things

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basically buying the a35 bond fund would be like buying a rolling bond ladder with the same duration? however a bond fund would be easier for smaller retail investors due to lesser capital to diversify AND less hassle of shopping for new bonds upon each bond of the bond ladder expiring? just that there is expense ratio for the A35?

Yep, exactly right.
 

Tornesoul

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(And its really a hassle to go and monitor the bidding dates, go and the ATM and signup for it, check up the yield of the bonds if its a reopen issue etc.)

with regards to the bond fund A35: Yes. There is only a bit of expense ratio and its much better for small retail investors to buy a diversify portfolio of bonds in just a click of a button.

Yep, exactly right.

Appreciate the replies. guess that's the way to go.

Mainly as a portfolio diversifier w less correlation to stocks yup? Since there's no maturity date.


Also read that zero coupon bonds are more suitable for known commitments with a known cost/date (no coupons to reinvest, which might not be possible with small total amounts invested).

Are SGS T-bills the only zero coupon bonds in sg? However they are only sold in 1 year tenors and aren't traded on sgx (unlike sgs bonds). So I guess we would be back to TS's question?
 
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Mainly as a portfolio diversifier w less correlation to stocks yup? Since there's no maturity date.

Yup, assets class diversification is the way to go. Also, i don't think i understand you, the bonds in a bond fund have maturity dates. Unless you were referring to something else.

Also read that zero coupon bonds are more suitable for known commitments with a known cost/date (no coupons to reinvest, which might not be possible with small total amounts invested).
yup and I guess its indifferent between a zero coupon bond and a bond which pays coupon but i prefer the latter. Then again, i rarely see a zero coupon bond.

Are SGS T-bills the only zero coupon bonds in sg? However they are only sold in 1 year tenors and aren't traded on sgx (unlike sgs bonds). So I guess we would be back to TS's question?

yes and actually i think the bank fix deposit or even some cash deposit account have a higher yield than our T-bill at the moment. someone mention about this too in this thread.

i found this while i was reading the link you provided. pretty informative. =)
https://www.bogleheads.org/wiki/Individual_bonds_vs_a_bond_fund
 

Tornesoul

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Yup, assets class diversification is the way to go. Also, i don't think i understand you, the bonds in a bond fund have maturity dates. Unless you were referring to something else.

yup and I guess its indifferent between a zero coupon bond and a bond which pays coupon but i prefer the latter. Then again, i rarely see a zero coupon bond.

yes and actually i think the bank fix deposit or even some cash deposit account have a higher yield than our T-bill at the moment. someone mention about this too in this thread.

i found this while i was reading the link you provided. pretty informative. =)
https://www.bogleheads.org/wiki/Individual_bonds_vs_a_bond_fund

Well how i see it (correct me if i'm wrong), it's like buying a bond that never matures, but yes the individual bonds in the index fund do mature at their respective dates as described on the website.

Selling the bond etf shares would be the closest to a maturity however the principal wouldn't be guaranteed, unlike a bond.

came across the term "dry powder" as well from andrew hallam, which was a pretty neat way to put across bonds.
Millionaire Teacher Spends $120,000 on Canadian Government Bonds » Andrew Hallam

thanks for the information on fixed deposits. definitely need to read up on alternative safe investments to stocks to find their place in a portfolio.

quite a wealth of information in the bogleheads website. glad i found it and happy to share! just that we need to actively filter off the usa specific info haha
 

Tornesoul

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was watching a35 today. the volume seems pretty bad. 7000 shares exchanged hands in one day (2march2015)

i assume this is the reason for the larger than normal big ask spread of bid 1.146, ask 1.154.

Any reason why a35 is quoted in 3 decimal places? other stocks tend to be in 2 decimal places. lack of volatility?

would this be an issue a potential investor in a35 should be concerned about? there dosent seem to be a better solution on sgx to a bund index fund though.

from what i understand, im sure that a35 is an etf. however the name bond index fund confuses me, as that would imply a mutual fund that is tracking an index. :s11:

"ABF Singapore Bond Index Fund ("Fund") - the first exchange traded fund ("ETF") bond fund in Singapore"
ABF SINGAPORE BOND INDEX FUND | Nikko AM Asia Limited | Singapore
 

lzydata

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Any reason why a35 is quoted in 3 decimal places? other stocks tend to be in 2 decimal places. lack of volatility?

Might have something to do with it being an ETF because I see other ETFs are also quoted to 3 decimal places and have bid sizes of $0.001. Depends on SGX practice.

Relative illiquidity compared to most stocks is a problem if you plan to buy and sell regularly, but I think in the long term it is not such a big issue.

from what i understand, im sure that a35 is an etf. however the name bond index fund confuses me, as that would imply a mutual fund that is tracking an index. :s11:

An index fund is a fund that aims to track an index. A bond index fund is bonds tracking a bond index. An ETF is an exchange-traded fund. Almost all ETFs are also index funds but usually do not say that explicitly. I think we don't need to get hung up over definitions, so long as we understand the nature of the investment.
 

Shiny Things

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was watching a35 today. the volume seems pretty bad. 7000 shares exchanged hands in one day (2march2015)

i assume this is the reason for the larger than normal big ask spread of bid 1.146, ask 1.154.
Yeah, because there's not a lot of active trading in this one, the price is just what the market-maker puts up. That shouldn't discourage you from posting a bid or offer inside the spread, though; you never know!

(I poked that stock a bit last year to see how the market-maker responds - short answer, even though the market-maker's only there in 5k, you can easily get 10k or 15k done at that level or even better just by waiting for the marketmaker to reload.)
 
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