Singapore Treasury bills (T-bills)

[reddevil0728]

No for discount off face value unless cut off price is less than face value. Yes for coupon rate.

What’s the chances for brand new sgs bond to be below face value then?

if that’s the case what’s the point of competitive bid?

 

[stephenbishop]

What’s the chances for brand new sgs bond to be below face value then?

Depends on the coupon rate. If the coupon rate is lower than the "market" rate (= cut-off yield), the cut-off price will be lower than face value.

if that’s the case what’s the point of competitive bid?

You are protected (i.e. you will be unsuccessful in your bid) if the cut-off yield is lower than the cut-off yield you entered in your competitive bid. In other words, you will not be forced to invest if the cut-off yield is lower than your required yield.

 

[reddevil0728]

Depends on the coupon rate. If the coupon rate is lower than the "market" rate (= cut-off yield), the cut-off price will be lower than face value.

You are protected (i.e. you will be unsuccessful in your bid) if the cut-off yield is lower than the cut-off yield you entered in your competitive bid. In other words, you will not be forced to invest if the cut-off yield is lower than your required yield.

Ok. So for SGS Bonds, the added complexity is that, you may get a discount off face value in addition to receiving coupon.

so the competitive bid is such that you are looking for a yield that is higher than what the coupon is paying

 

[jayou8]

Again a much higher auction result than the prevailing market yield.

Nice! Too bad I gave this a miss as I took your cue and now looking at astrea v (although different credit risk)

 

[stephenbishop]

Ok. So for SGS Bonds, the added complexity is that, you may get a discount off face value in addition to receiving coupon.

so the competitive bid is such that you are looking for a yield that is higher than what the coupon is paying

Not sure I would put it that way. If the actual coupon is higher than the cut-off yield you will pay a cut-off price higher than face value. If the actual coupon is lower than the cut-off yield you will pay a cut-off price lower than face value.

 

[reddevil0728]

Not sure I would put it that way. If the actual coupon is higher than the cut-off yield you will pay a cut-off price higher than face value. If the actual coupon is lower than the cut-off yield you will pay a cut-off price lower than face value.

Oh, so it’s possible to pay more than face value?

hmmm..

 

[stephenbishop]

Of course!

Let me try and explain with actual numbers using NY09100H as an example.

Successful bidders will pay 101.621 and will get a 3% coupon over 26 months. The actual yield is 2.70% and not 3% as the "premium" of 1.621 will be amortised over 26 months and the investor will only receive 100 on maturity.

The converse will also be true. If the actual coupon is lower than the cut-off yield the cut-off price will be lower than face value and the "discount" will be amortised over the duration of the bond to "top up" the yield to the cut-off yield.

 

[anddrool]

What’s the chances for brand new sgs bond to be below face value then?

if that’s the case what’s the point of competitive bid?

No. New issue SGS is at $100. Yield follow coupon rate. It is not a reopen SGS.

 

[lzydata]

What’s the chances for brand new sgs bond to be below face value then?

if that’s the case what’s the point of competitive bid?

No. New issue SGS is at $100. Yield follow coupon rate. It is not a reopen SGS.

Yes indeed.

For new SGS bonds, this is the treatment according to MAS:

The coupon rate for a newly issued SGS bond is the cut-off yield of successful competitive bids rounded down to the nearest 0.125%. The minimum coupon rate for SGS bonds will be 0.125%.

If the cut-off yield is higher than the coupon rate, the purchase price would be lower than 100% of the bid amount. The difference would be credited back into the individual investor's account.

Conversely, if the cut-off yield is lower than the coupon rate, the purchase price is higher than the bid amount, and the difference is debited from the account.

https://www.mas.gov.sg/bonds-and-bi...ent-securities/how-sgs-auctions-are-conducted
So that is the point of the competitive bidding - it sets the coupon.

Anyway it seems new issue SGS is becoming very rare, only 2 out of 9 on the calendar for this year.

 

[a4973]

So what are the advantages vs disadvantages for New issue SGS Bonds? Thanks.

 

[anddrool]

If buy from bank, the bonds are held in CDP. If buy from FSM, FSM hold it as custodian ?

Yes. From my understanding.

From FSM Bond FAQ.

17. In whose name will the bonds be registered in?
​

Securities are held on your behalf by iFAST and/or its appointed Custodian, hence the Securities are not registered in your name.

 

[stephenbishop]

No. New issue SGS is at $100. Yield follow coupon rate. It is not a reopen SGS.

Yes indeed.

For new SGS bonds, this is the treatment according to MAS:

The coupon rate for a newly issued SGS bond is the cut-off yield of successful competitive bids rounded down to the nearest 0.125%. The minimum coupon rate for SGS bonds will be 0.125%.

If the cut-off yield is higher than the coupon rate, the purchase price would be lower than 100% of the bid amount. The difference would be credited back into the individual investor's account.

Conversely, if the cut-off yield is lower than the coupon rate, the purchase price is higher than the bid amount, and the difference is debited from the account.

https://www.mas.gov.sg/bonds-and-bi...ent-securities/how-sgs-auctions-are-conducted
So that is the point of the competitive bidding - it sets the coupon.

Anyway it seems new issue SGS is becoming very rare, only 2 out of 9 on the calendar for this year.

Thank you for pointing out that the cut off yield of a new SGS Bond = Coupon Rate. I did not know that. I was under the mistaken impression that a new SGS Bond would have a preset notional coupon!

 

[reddevil0728]

Of course!

Let me try and explain with actual numbers using NY09100H as an example.

Successful bidders will pay 101.621 and will get a 3% coupon over 26 months. The actual yield is 2.70% and not 3% as the "premium" of 1.621 will be amortised over 26 months and the investor will only receive 100 on maturity.

The converse will also be true. If the actual coupon is lower than the cut-off yield the cut-off price will be lower than face value and the "discount" will be amortised over the duration of the bond to "top up" the yield to the cut-off yield.

No. New issue SGS is at $100. Yield follow coupon rate. It is not a reopen SGS.

Yes indeed.

For new SGS bonds, this is the treatment according to MAS:

The coupon rate for a newly issued SGS bond is the cut-off yield of successful competitive bids rounded down to the nearest 0.125%. The minimum coupon rate for SGS bonds will be 0.125%.

If the cut-off yield is higher than the coupon rate, the purchase price would be lower than 100% of the bid amount. The difference would be credited back into the individual investor's account.

Conversely, if the cut-off yield is lower than the coupon rate, the purchase price is higher than the bid amount, and the difference is debited from the account.

https://www.mas.gov.sg/bonds-and-bi...ent-securities/how-sgs-auctions-are-conducted
So that is the point of the competitive bidding - it sets the coupon.

Anyway it seems new issue SGS is becoming very rare, only 2 out of 9 on the calendar for this year.

Thank you for pointing out that the cut off yield of a new SGS Bond = Coupon Rate. I did not know that. I was under the mistaken impression that a new SGS Bond would have a preset notional coupon!

Ok getting a bit confused.

For the avoidance of doubt, brand new SGS bonds, you will still be paying the face value amount.

but the coupon rate is based on cut-off yield (rounded) that’s from competitive bid?

for reopen, I can understand how it is different.

 

[stephenbishop]

Ok getting a bit confused.

For the avoidance of doubt, brand new SGS bonds, you will still be paying the face value amount.

but the coupon rate is based on cut-off yield (rounded) that’s from competitive bid?

for reopen, I can understand how it is different.

I think you are correct.

 

[reddevil0728]

I think you are correct.

So ok Tbill competitive bid sets the cut-off yield for the discount you get off face value.

Sgs bond (new) competitive bid sets the coupon rate

sgs bond (reopen) competitive bid sets the amount you are paying for the Face value. And coupon rate is already previously fixed

 

[anddrool]

So what are the advantages vs disadvantages for New issue SGS Bonds? Thanks.

I think the main difference is the tenor.
For new bond, 2, 5, 10, 15, 20 or 30 years.
Therefore mostly likely the tenor is going to be more than 5 years.

For reopen bond,
Able to get less than 5 years remaining tenor quite easily.

 

[lzydata]

So what are the advantages vs disadvantages for New issue SGS Bonds? Thanks.

It is not like there are many options on offer for SGS bonds and you can pick new versus reopened. There are only that many auctions and most of them are for reopened bonds. So I would not even worry about this. In any case the better option for individual investors is SSB as it is more user friendly.

 

[stephenbishop]

In any case the better option for individual investors is SSB as it is more user friendly.

I agree. From the perspective of both ease of understanding and liquidity, generally, it is only after we have exhausted our 200k SSB quota that we should consider SGS t-bills and bonds.

 

[sohguanh]

This is a very informative thread especially for SGS bonds Reopen. Thank you stephenbishop for your posts especially on the SGS bond Reopen topic. It seems it is more complicated than what I thought previously. SGS bond New is easier to understand since it is brand new.

But I think for simple investors, SSB and 6,12 months T-bill are easier to understand unless there is T-bill Reopen which is unlikely since they are just 6 or 12 months.

 

[lzydata]

But I think for simple investors, SSB and 6,12 months T-bill are easier to understand unless there is T-bill Reopen which is unlikely since they are just 6 or 12 months.

There are no reopened T-bills, only new ones.