Investing in Singapore Government Securities (SGS)
As a form of risk diversification, it is important for every investor to maintain a portfolio investment consisting of different asset classes such as equities, currency, precious metals, property and bonds. Typically, these asset classes move in opposite directions and therefore smooth out the volatility in your portfolio in different economic scenarios.
In the current low interest rate environment, it may be prudent to invest bonds. Below is some of my research on Singapore government bonds – SGS, extracted from the www.sgs.gov.sg. The information below is for sharing and not to be misconstrued as financial advice or recommendation.
Singapore Government Securities (SGS) are marketable debt instruments of the Government of Singapore. These debt instruments take the form of either Treasury bills (T-bills) or bonds, and are considered safe investments, as they are backed by the full faith and credit of the Singapore Government. The terms of issuance for T-bills and bonds are governed by the Local Treasury Bills Act and the Government Securities Act respectively.The Singapore Government is obliged to pay the holders of SGS a fixed sum of money on the maturity date of the securities. SGS cannot be cashed in before their maturity dates, but investors can always sell them in the SGS market. SGS Primary Dealers are prepared to buy and sell SGS at any time during normal market trading hours.As the fiscal agent of the Government, the Monetary Authority of Singapore (MAS) acts to undertake the issue and management of SGS on its behalf.
T-bills are short-term debt securities that mature in one year or less from their issue date. They are bought and sold at a discount, i.e. at a price less than their face (par) value, and when they mature, the Government will pay the holder an amount of S$ equivalent to the face value of the security. Therefore, the interest earned on the T-bill is the difference between its purchase price and face (par) value. They are denominated at nominal values of S$1,000 and traded at a rate of discount basis. The Singapore Government issues T-bills of 3-month, 6-month and 1-year maturities. SGS bonds are longer-term debt securities, which pay a fixed rate of interest (called the coupon) every six months for the life of the securities and then their face (par) values upon redemption on maturity. They are generally not issued at a discount unlike T-bills, and have typical maturities of 2, 5, 10, 15, 20 and 30 years.The most recently issued SGS bonds in each of these tenors are typically known as the benchmark securities and tend to be more actively traded. Older and more seasoned SGS bonds become off-the-run issues and tend to be less actively traded. SGS bonds are also denominated in nominal values of S$1,000 and traded on a price basis expressed in terms of S$100 principal.
Summary Table on SGS
|Singapore Government||Singapore Government|
|3 months, 6 months, 1 year||2, 5, 10, 15, 20 and 30 years|
|N/A||Every six months|
Only Primary Dealers (PDs) in the SGS market are allowed to submit bids at the SGS auctions. However, should you wish to participate in the auctions, you can submit your bids through any of the PDs or Secondary Dealers who will submit bids to the PDs on your behalf.You may purchase SGS at primary auctions or in the secondary market.
After the auction announcement, the most convenient way for most individual investors to submit bids for SGS is through the DBS, POSB, UOB and OCBC ATMs. For the weekly 3-month T-bill and fortnightly 6-month T-bill auctions, the application window at the ATM is typically open between Wednesdays 6pm to Fridays 9pm. Individual investors should check with their banks on the exact closing date for SGS application through these channels. Similar to an IPO application, you will need a valid individual CDP account number and your bank account will be debited for the full bid amount at the point of application.
For reopened bonds, the amount debited will be 115% of the bid amount to take into account capital gains and accrued interest, since the market price of the reopened bond is only known after the auction. If the purchase price of the reopened bond is lower (or higher) than 115% of the bid amount, the difference would be credited (or debited) into/from the individual investor’s bank account.
After an auction, successful bidders will receive a statement notification from CDP, typically the next business day after the issuance date.
ii) In the Secondary Market
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