THE latest Singapore Savings Bond (SSB), allotted on Wednesday (Nov 27), recorded a rise in the number of applications as yields rose from those of the previous tranche.
The December tranche of the Singapore government-backed bonds received a total of S$164.8 million for the S$600 million on offer. Some S$153.4 million were applied within allotment limits, and this amount was fully assigned.
In comparison, the November issuance received S$99.6 million in applications for the S$600 million on offer.
The latest tranche offers a first-year interest rate of 2.66 per cent, and a 10-year average return of 2.81 per cent.
Interest rates for SSBs have slipped in the last two tranches. The November issuance, which saw yields slip to record lows for 2024, offered a first-year interest rate of 2.25 per cent, and a 10-year average return of 2.56 per cent.
Eugene Leow, senior rates strategist at DBS, said investors of SSBs tend to be sensitive to absolute yield levels.
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While he noted that the number of applications picked up in the latest issuance, “this level of demand is still not particularly high”.
“In the June and July issues, demand exceeded S$1 billion. I would expect a meaningful step-up in demand if SSB yields cross 3 per cent,” he added.
Some market observers previously noted that bond yields historically declined ahead of rate cuts by the US Federal Reserve, as markets anticipate monetary policy easing.
In a note on Wednesday, Leow said the Federal Open Market Committee meeting hinted at a more cautious take on easing. “The appropriate neutral rate is uncertain and may well be higher than what the Fed pencilled in for September (2.9 per cent),” he noted.
Still, he expects the Fed to cut interest rates in December, but that it could signal an even slower pace of easing going forward.
Applications for the SSB closed on Nov 26, and the bonds will be issued on Dec 2.
SSB interest rates are taken from the average yields of the previous month’s Singapore government bonds.
However, they are subject to adjustments to ensure that interest rates do not fall over time and form inverted yield curves whereby the yields of short-dated bills exceed those of longer-dated bonds.
The government may make adjustments to ensure that returns do not step down before the SSB matures, so as to provide investors with a return that increases across their holding periods.
