Bid for S'pore Govt Securities via ATMs
Move allows investors easier access to liquid and safe alternative
By Gabriel Chen(Taken from the Straits Times on 30th June 2009)
Investors will be able to submit bids for Singapore Government Securities on ATMs once an auction announcement has been made on the SGS website.
Investors will be able to apply for Singapore Government Securities (SGS) - debt instruments in the form of either Treasury bills (T-bills) or bonds - by using ATM machines from tomorrow.
Quick Facts
- SGS are debt instruments issued by the Government. They can be in the form of Treasury bills or bonds.
- The minimum investment amount is $1,000, and you can invest in multiples of $1,000. You can use your CPF.
- You can apply through all DBS Bank, United Overseas Bank and OCBC Bank ATMs.
- Investors will need a valid individual Central Depository account number. There will also be minimal administrative fees.
The securities ride on the strong credit strength of the Singapore Government and have, arguably, not been very accessible to retail investors.
- SGS can be sold at any of the three local banks.
Up to now, retail investors have only had exposure to them through money market funds, primary dealers like the three local banks, or secondary dealers, such as stockbrokers.
With effect from tomorrow, individuals can apply for SGS via all DBS Bank, United Overseas Bank and OCBC Bank ATMs.
With the changes - officially announced by Monetary Authority of Singapore chairman Goh Chok Tong last Friday - investors can head to ATMs to submit bids once an auction announcement has been made on the SGS website (www.sgs.gov.sg).
The bids can be either competitive or non-competitive.
A competitive bid is one where a bidder has to specify the price he is willing to pay for the securities and is allocated securities if his bid is high enough in comparison to others. A non-competitive bid is one where the bidder does not specify a price.
The price is expressed in terms of percentage yield.
Similar to an Initial Public Offering (IPO) application, investors will need a valid individual Central Depository (CDP) account number. Minimal administrative fees will also be charged by CDP.
Investors can sell SGS via the three local banks.
Tuesday, June 30
Bid for S'pore govt securities via ATMs
Posted by
Kay
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Tuesday, June 30, 2009
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Hi Kay,
ReplyDeleteIt is good that one can now buy/sell SGS via ATMs. Can you pls explain (in layman's terms)the relationship between Coupon Rate and Yield?
Let’s take an example from https://secure.sgs.gov.sg/apps/goto/?app=dailyPrices. Pls look at the 2-yr product.
Coupon Rate = 3.625% per annum
Tenor = 2 yr
Face Value = $100.00
Latest Closing Price on 1-Jul-09 = $105.99
Yield = 0.61
There seems to be no relationship between the Closing Price and the Yield over the 6-day period. I would expect the Yield to be lower as the Closing Price gets higher, but it is not the case. Can you pls explain this?
How is the Yield derived from these above figures? Pls show formula relating all the variables above? The Coupon Rate looks good (better than CPF's OA rate of 2.5%). But the Yield looks poor. So, is this product a worthwhile investment for a conservative guy like me?
For 3-mth and 1-yr products, the Coupon Rate is not shown. Only the Yield is shown. How can I calculate the Coupon Rate? I am used to thinking in Coupon Rate as it is similar to FD interest rates expressed by banks. Thanks.
Hi VS Lingam,
ReplyDeleteIt is now more convenient to buy SGS since one can buy it from the ATM. However, going from what I read in the article, there seems to be charges associated with such transactions although the charges are not likely to be high so you may wish to take notice of that.
Coupon rate is based on the face value while yield is based on the price that you bought at. As such, coupon rate only tells you how much the payout will be. You will have to look at the yield to decide if it is attractive. It is true that the yield is lower if the price is higher and vice versa.
There is no simple way of calculating the yield. You can try to understand the formulas given in the SGS guide which is found on the SGS website but I reckon that the formulas will seem to be intimidating and mind boggling at sight. Personally, I use the concept of the internal rate of return to calculate the yield. It would be far too long for me to explain here so if it interests you, you may wish to take a look at this article on the internal rate of return @ http://hspm.sph.sc.edu/COURSES/ECON/irr/irr.html
Using Microsoft Excel with its built in internal rate of return formula, I have tested the data for the 2 and 5 years SGS bond and it correspond with the data given in the table although the data for the 1st date of the 2 years bond seem to be slightly ambiguous.
Thus if you consider the yield of the SGS with the CPF Ordinary Account interest rate, only those bonds with a maturity period of 10 years are higher than 2.5%. I can't tell you whether this product is a worthwhile investment for you since I will need more information regarding your investment objective and time frame.
For the 3 months and 1 years Treasury Bills, they have no payouts during the holding period. Only bonds have payouts or coupons. The yield of the Treasury Bills comes from the discount that is being sold from their face value at the initial purchase.
Kay
Hi Kay,
ReplyDeleteTks for the explanations.
I like your concept of using Excel and the IRR to determine Yield. It clearly shows the money outflow and inflows, thereby giving one a visual picture of what is going on.
FYI, my investment objective is to get a better return than CPF's OA interest by investing in a virtually risk-free product. I realise that it won't beat inflation, and am prepared to wait out several yrs. So the 10-yr bond looks like a good candidate for me. And it is going at a discount.
Tks for the wonderful insight into IRR.
This comment has been removed by the author.
ReplyDeleteHi VS Lingam,
ReplyDeleteThanks for your compliment. You may wish to take note all the SGS bonds currently are selling at a premium to their face value. At this point of time, equities are at a discount in contrast to bonds.
Kay,
ReplyDeleteSorry, why do you say that? The 10-yr SGS bond has a closing price of $99.60 on 7-Jul-09. Am I missing something? Tks.
Hi VS Lingam,
ReplyDeleteYou're not missing out on anything. I made a mistake for the 10 year SGS. My apologies.
Kay
Kay,
ReplyDeleteNo problems. And thanks again for your enlightening article on SGS-made-simple.
Hi VS Lingam,
ReplyDeleteIt's been my pleasure to be of some help.
Kay
after you bought the SGS, what do you? do you just wait till maturity? what are your options?
ReplyDeleteHi $ing,
ReplyDeleteSGS is an investment tool for me to hold my funds when there are no opportunities for me to grow my funds. Personally, I tend to buy only SGS that has a short maturity period and my objective is not to sell them for a capital gain.
Kay
Hi,
ReplyDeleteThe post above stated that we can "submit bids for Singapore Government Securities on ATMs once an auction announcement has been made on the SGS website".
Is this statement only applicable to new and re-opened bonds?
(I think the answer is YES but just to re-confirm)
How about those bonds in the market? Can they be bought through ATM as well?
(I was infront of a local bank ATM a moment ago and was quite hesitant to key in the issue code for those bonds in the market now [not new or re-opened] bonds.])
Thanks
Hi,
ReplyDeleteYou can buy new and reopened SGS Treasury Bills or Bonds through the ATM. However, the same does not hold for those SGS bonds on the market.
Kay