The above are the latest fixed deposit rates available at the various banks for June 2022. Interestingly, the highest is 1.95% for a period of 24 months from RHB bank.
In view of the spike in the short term bond rates, I extracted the Singapore Government Bonds’ rates to find interesting opportunities for fixed depositors.
Yield-to-maturity (YTM) for the bond that matures 01 Jun 2025 is 2.696% per annum! Similar bond that matures in 1.5 years time is yielding 2.367% per annum.
NX13100H; Coupon: 2.750%; Maturity: 01/07/2023 – this is maturing in about a year’s time and the yield is 2.228% per annum.
We can see that all the different tenures of the bonds are giving a better yield than fixed deposit rates.
What about the risks?
The credit rating of Singapore Government is AAA! This is definitely higher than all the banks listed above as the banks has a lower credit ratings compared to the Singapore Government. Even DBS Group is assigned a AA- by Fitch.
In a nutshell, investors are compensated higher by assuming a lower credit risk. Since the banks stand at a higher chance of default compared to the Singapore Government (though the probability of a bank in Singapore to default is low), it makes real investment sense to take this mispricing at the moment to move into Singapore Government Bonds. As long as the buyer of these bonds hold them out to maturity, which is between 1-3 years, the Yield to Maturity is accurate.
Furthermore, if the global economy eventually heads into a recession and central banks start lowering rates to combat it, there is an upside potential on the capital as well.
But I would suggest holders who got it now to simply hold them out to maturity as its meant to be an alternative to fixed deposits.
Hey, these bonds are $250,000 per lot size! Too big for me lah!
Wrong! These are retail and thus, minimum is $1,000! This is our capability as we transact OTC (Over-the-counter), where other financial institutions don’t want to do, because OTC trades are most troublesome to execute and they won’t do it for just 1k trades
All you need to do is to have an account with us, iFAST Global Market and let us handle the rest for you!
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