Who’s not happy with Singapore Savings Bonds?

Redemption flexibility is not everyone’s cup of tea.

Singapore Savings Bonds were launched with great fanfare by the Monetary Authority of Singapore last week. This new bond scheme targets retail investors who wish to build up their savings with a cost effective and low risk savings option.

UOB’s Victor Yong lauded SSBs as a bridge which will help close the gap for regular savers whose choice has typically been between holding cash or taking on equity risk.

However, he also warned that SSBs will not be everyone’s cup of tea. With its maximum tenure of 10 years and a yield that steps up to match starting Singapore Government Security (SGS) every year, SSBs might be shunned by yield-sensitive investors.

“Yield sensitive investors, for instance, will likely forgo the SSBs’ redemption flexibility in favour of higher paying fixed deposit promotional rates, particularly if their investment horizon is shorter than 10 years,” Yong noted.

Apart from this, lump-sum investors may also have issues with the SSBs’ yet to be announced maximum investment cap. Both fixed deposits and regular government bonds have no maximum investment limits.

“The prospect of having to deploy a lump sum across multiple months is tedious unless SSBs allows for GIRO type instructions,” he stated.

He further noted that while SSBs have many valuable features that will appeal to a currently underserved segment of savers, it remains to be seen how feasible SSBs will be in the long term.

“Beyond the initial euphoria surrounding a new product, the long term viability of SSBs will depend on public awareness, an easy to use delivery platform and how competition evolves,” he said.