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Investing in Singapore Government Securities (SGS) might sound like a safe bet, but is it the right move for you?
In this post, you’ll learn:
- What SGS bonds are and how they work
- Why they’re considered one of the safest investments
- How to buy and sell them
- Whether they’re a good fit for your portfolio
SGS bonds aren’t flashy, but their steady returns and government backing make them a popular choice for risk-averse investors.
If you’re curious about how to secure stable returns, keep reading!
What are Singapore Government Securities (SGS)?
Singapore Government Securities (SGS) are debt instruments issued by the Singapore government to meet the nation’s financing needs.
When you invest in SGS, you’re essentially lending money to the government, which promises to repay the principal and periodic interest or “coupons.”
These securities are fully backed by the government, which makes them one of the safest investment options in the market.
How safe are Singapore Government Securities?
If safety is your top priority when investing, Singapore Government Securities (SGS) are hard to beat.
They are fully backed by the Singapore government and are known for their strong financial standing and impeccable AAA credit rating from major agencies like Moody’s, S&P, and Fitch.
This means that the likelihood of default – the government not paying you back – is extremely low, giving you a sense of security that many other investments can’t provide.
Why is this important?
An AAA rating is the highest possible credit rating, reflecting the country’s ability to meet its financial obligations.
Singapore is among the few nations globally to hold this top-tier rating, largely due to its stable economy, prudent fiscal policies, and strong governance.
Essentially, when you invest in SGS, you’re putting your money into one of the safest assets available, not just in Singapore but worldwide.
Types of Singapore Government Securities
Singapore Savings Bonds (SSBs)
Singapore Savings Bonds (SSBs) are a flexible and low-risk investment option designed for individual investors like you.
They allow you to earn a steady interest over time, with returns that “step up” the longer you hold them.
One of the best features of SSBs is that they can be redeemed anytime without losing the accrued interest.
Plus, they require a minimum investment of just $500, making them highly accessible to new investors.
The maximum holding period is 10 years, and the interest rate increases over time to reward long-term holding.
Singapore T-Bills
Treasury Bills (T-Bills) are short-term debt securities with maturities of either 6 months or 1 year.
They’re a good option if you’re looking for a safe place to park your funds for a short period while earning a return.
Unlike SSBs, T-Bills don’t offer interest payments.
Instead, they’re issued at a discount, meaning you pay less upfront and receive the full face value at maturity.
T-Bills are typically favoured by investors looking for low-risk, short-term investments.
Singapore Government Securities (SGS) bonds
SGS bonds are longer-term investment instruments, with maturities ranging from 2 to 50 years.
These bonds offer semi-annual interest payments, which can provide you with a steady income stream over time.
They’re ideal if you’re looking for a stable, long-term investment backed by the Singapore government.
With a minimum investment of S$1,000, SGS bonds are accessible and provide an attractive option for those who prefer a reliable source of income while maintaining low risk.
In this post, we’ll focus on SGS bonds.
How do SGS bonds work?
Fixed-rate bonds
Singapore Government Securities (SGS) bonds come with a fixed interest rate, meaning you receive a steady, predetermined return throughout the bond’s tenure.
When you purchase an SGS bond, you essentially lend money to the Singapore government.
In return, the government agrees to pay you interest every 6 months, also known as the “coupon.”
This fixed interest rate remains unchanged throughout the bond’s life, providing a reliable income stream.
SGS bonds are available in various maturities, typically 2, 5, 10, 15, 20, 30, or 50 years.
The longer the bond’s tenure, the higher the potential return, which means you’re committing your funds for a longer period.
At the end of the bond’s term, the government will repay the principal amount you invested.
Coupon payments
When you invest in SGS bonds, you’ll earn regular coupon payments, which are the interest paid by the Singapore government.
These payments are made every 6 months, providing a predictable income stream throughout the bond’s life.
The interest rate, or coupon, is fixed at the time of purchase, so you’ll know exactly how much you’ll receive during each payment cycle.
For example, if you invest S$10,000 in a bond with a 2% annual coupon rate, you’ll receive S$100 every 6 months until the bond matures.
This steady flow of income makes SGS bonds a stable and reliable investment option.
Principal repayment
At the end of the bond’s tenure, known as the maturity date, the government will repay the bond’s face value, the original amount you invested.
Whether you invested S$1,000 or more, you’ll get back the full principal amount once the bond matures.
For instance, if you invest in a 10-year SGS bond, after 10 years, you’ll receive your principal back, along with your final coupon payment.
Who can buy SGS bonds?
Individuals
Whether you’re a Singapore citizen, Permanent Resident (PR), or a foreigner, you can easily invest in SGS Bonds.
This inclusivity allows anyone, regardless of nationality, to benefit from the safety and returns offered by the Singapore government.
The minimum investment is S$1,000, making it accessible if you’re new to investing or prefer a smaller commitment.
Corporations and institutions
Corporations, financial institutions, and other organisations are also eligible to invest.
This makes SGS bonds a versatile tool for personal wealth management and corporate financial strategies, offering the same low-risk, stable returns to businesses and institutions.
Why are SGS bonds attractive to investors?
Low risk
One of the key reasons SGS bonds are so appealing to investors is their low risk.
These bonds are fully backed by the Singapore government, which holds a prestigious AAA credit rating – the highest possible.
Simply put, it’s one of the safest places to park money.
Whether you’re a cautious investor or just looking to balance a riskier portfolio, SGS bonds offer peace of mind with reliable protection for your capital.
Regular income
Investors receive regular coupon payments every 6 months, offering a stable income stream throughout the bond’s tenure.
This predictable cash flow is especially attractive if you seek consistent returns without taking too much risk.
Whether you choose a bond with a shorter or longer maturity, these regular payments can help supplement your income or support your long-term financial goals.
Capital preservation
If you hold the bond until maturity, there is no risk of losing your principal.
This is because the Singapore government guarantees that the full face value of the bond will be repaid at the end of its tenure.
Whether you’re investing $1,000 or a larger amount, you can count on receiving your entire principal back, which makes SGS bonds ideal for those who prioritise safeguarding their initial investment.
Potential capital gains
There’s also the opportunity for potential capital gains if you purchase SGS bonds below their par value.
Occasionally, bonds are sold on the secondary market at a discount, meaning you could pay less than the bond’s face value but still receive the full amount at maturity.
This difference between the purchase price and the face value could result in a capital gain, providing you with an additional layer of return on top of the regular coupon payments.
Diversification
SGS bonds are also an excellent way to diversify your investment portfolio.
By adding bonds to your mix of assets, you can balance out riskier investments like stocks or equities.
Bonds typically move inversely to the stock market, so during periods of market volatility, the stability of SGS bonds can help smooth out fluctuations in your overall portfolio.
This makes them a valuable tool for maintaining financial stability and reducing overall risk.
How to buy SGS bonds?
Buying through auction
Purchasing SGS bonds through an auction is straightforward, and you can use cash, your Central Provident Fund (CPF) savings, or your Supplementary Retirement Scheme (SRS) funds to invest.
Here’s a simple breakdown of the process:
1. Determine your funding source
First, decide how to pay for the bonds – cash, CPF Investment Scheme (CPFIS), or SRS.
If you’re using CPF or SRS, ensure you have the required accounts (CPF Investment Account or SRS Account) opened with approved agents like local banks (DBS, OCBC, UOB).
2. Participate in the auction
SGS bonds are sold via auctions organised by the Monetary Authority of Singapore (MAS).
Auctions are held periodically, and you’ll need to submit your application either through:
- Internet banking platforms of participating banks (DBS, OCBC, UOB)
- ATMs of participating banks
- CPF/SRS operators (if investing via CPFIS or SRS)
3. Bidding options
During the auction, you can place either a competitive bid or a non-competitive bid.
In a competitive bid, you specify the yield (interest rate) you’re willing to accept.
However, there’s a chance your bid might not be successful if the yield you’ve requested is too high.
In a non-competitive bid, you agree to accept the yield determined by the auction.
This option ensures your bid will be accepted, though you won’t know the exact yield in advance.
4. Check auction results
Once the auction closes, the results are announced, and if your bid is successful, you’ll receive the allocated bonds.
For non-competitive bids, you’ll be allotted bonds at the auction-determined yield.
5. Receive your bonds
If you’ve paid through cash, your bonds will be held in your CDP (Central Depository) account.
For CPF or SRS investments, the bonds will be reflected in your CPF Investment Account or SRS Account.
Buying through secondary markets
If you miss the auction or prefer more flexibility, you can buy SGS bonds on the secondary market through the Singapore Exchange (SGX).
Here’s how you can do it:
1. Open a brokerage account
To buy SGS bonds on the secondary market, you must have a brokerage account with one of the licensed brokers in Singapore (such as DBS Vickers, OCBC Securities, or UOB Kay Hian).
If you don’t already have a Central Depository (CDP) account, you’ll need to open one as well.
The CDP will hold the bonds in your name.
2. Browse available SGS bonds
Once your accounts are set up, you can browse the SGS bonds available for sale on the SGX.
These bonds can be bought or sold just like stocks.
The prices of bonds on the secondary market may vary from their original issue price, depending on interest rates and demand.
3. Place an order
After identifying the bond you want to purchase, place a buy order through your broker, either online or through their platform.
The bond price is listed as a percentage of its face value.
For example, if a bond is listed at 98, you’ll pay $980 for a bond with a face value of $1,000.
4. Transaction costs
Remember that buying through the secondary market may involve transaction fees or brokerage costs, which vary depending on the broker you use.
5. Hold or sell
Once the purchase is completed, the SGS bonds will be credited to your CDP account.
You can hold the bonds until maturity to receive regular coupon payments or sell them later if your financial needs change.
Selling on the secondary market means you can exit your investment before the bond matures, but keep in mind that the price you sell at might differ from the price you paid, depending on market conditions.
Should I buy SGS bonds from the SGS website or through SGX?
If you buy SGS bonds directly from the SGS website via auction, you’ll avoid transaction fees, making it cost-effective, especially for smaller investments.
You’re guaranteed an allocation through a non-competitive bid, though the yield is set only after the auction closes.
This option is ideal for those planning to hold the bonds until maturity, offering a straightforward way to secure a stable, long-term return with no added costs.
In contrast, buying through the SGX secondary market allows for greater flexibility and liquidity, as you can purchase or sell bonds anytime without waiting for the next auction.
However, bond prices fluctuate in the secondary market, meaning you could buy below or above face value, depending on market demand and interest rates.
SGX transactions also involve brokerage fees, which may increase if you trade frequently or make smaller investments.
Ultimately, your choice depends on prioritising cost savings and simplicity (SGS website) or flexibility and liquidity (SGX).
What should I take note of when buying SGS bonds on the secondary market?
Price fluctuations
On the secondary market, bond prices fluctuate based on demand, interest rates, and market conditions.
If interest rates rise, bond prices tend to fall, and vice versa.
Be mindful of these movements if you plan to sell before maturity.
Yield to maturity
The Yield to maturity (YTM) is the effective return you’ll earn if you hold the bond until it matures.
If you buy the bond at a discount (below par value), your YTM may be higher than the bond’s coupon rate, and if bought at a premium (above par value), your YTM could be lower.
Always consider the YTM, as it gives a more accurate picture of your potential returns than just looking at the coupon rate.
Transaction fees
Buying SGS bonds on the secondary market through a broker involves brokerage fees and potentially other transaction costs.
These fees vary depending on the broker you use, so it’s essential to check what charges apply before you invest.
Although fees are generally low, they can eat into your returns, especially if you’re trading smaller amounts.
Liquidity
While SGS bonds are highly liquid compared to other assets, selling them on the secondary market before maturity can be influenced by market conditions.
If demand for bonds is low or interest rates rise, you may have to sell your bond at a discount, resulting in a capital loss.
If you’re likely to need access to your funds before the bond matures, be prepared for potential price variations.
Remaining tenure
Consider the remaining tenure of the bond before purchasing it.
Bonds with shorter remaining maturities may offer less interest over time, but they also have less price volatility.
Conversely, longer-term bonds may offer more interest but come with greater exposure to interest rate risk, as their prices fluctuate more with rate changes.
Coupon payment schedule
Check the coupon payment dates when buying on the secondary market.
Depending on when you purchase the bond, you might be near a coupon payment date or have just missed one.
You’ll want to understand how the timing of your purchase affects your immediate returns.
When will I get my first SGS bond interest payment?
Your first interest payment depends on when you bought the bond and follows the bond’s payment schedule. Here’s what to expect:
- Semi-annual payments: SGS bonds pay interest every 6 months from their issue date, and this schedule continues throughout the bond’s term.
- If you buy at auction or on the issue date: Your first interest payment will be exactly 6 months from the bond’s issue date.
- If you buy on the secondary market: Your first interest payment will be on the next scheduled coupon date after your purchase. This date depends on when the bond was initially issued and its position in the 6-month cycle.
For example, if a bond issued on February 1 pays interest every 6 months, and you buy it on April 15, your first payment would still be on the next scheduled date – August 1. This payment will be based on the bond’s fixed coupon rate and will follow the semi-annual schedule from that point onward.
Drawbacks of SGS bonds
Lower returns
While SGS bonds are one of the safest investment options, they tend to offer lower returns compared to riskier assets like equities or corporate bonds.
The interest rates (coupon rates) on SGS bonds are fixed and generally conservative, reflecting their low-risk nature.
While this stability is attractive for risk-averse investors, the returns may need to catch up with inflation or outperform higher-yield investments over the long term.
Liquidity constraints
SGS bonds come with some liquidity constraints, as you cannot make early redemptions before the bond’s maturity.
This limits your ability to access your invested capital if your financial situation changes.
Although you can sell your bonds on the secondary market through the Singapore Exchange (SGX), this comes with its challenges:
- Price volatility: If market interest rates rise or demand for the bonds decreases, you might have to sell at a discount, potentially incurring a loss.
- Limited liquidity: Some SGS bonds, especially less actively traded issues, may not have enough buyers, making it harder to sell the bonds quickly at a fair price.
Interest rate risk
Like all bonds, SGS bonds are subject to interest rate risk.
When interest rates rise, new bonds are issued with higher coupon rates, making your existing SGS bonds, with their lower fixed interest rates, less attractive to investors.
This can lead to a drop in the bond’s price if you sell it on the secondary market.
While holding the bond to maturity avoids this issue, selling early could result in a capital loss during rising interest rates.
How do I withdraw money or redeem SGS bonds?
Hold until maturity
If you hold your SGS bonds until they reach maturity, the process is straightforward.
On the maturity date, the Singapore government will automatically repay your principal (the original amount you invested) into your Central Depository (CDP) account.
You don’t need to take any action.
You’ll also receive your final coupon (interest) payment on the same date, credited to your CDP-linked bank account.
Selling on the secondary market
If you need to access your funds before the bond matures, you can sell your SGS bonds on the secondary market through the Singapore Exchange (SGX). Here’s how:
First, use a brokerage account.
To sell your bonds, you’ll need to have a brokerage account that’s linked to your CDP account.
Next, place a sell order.
Once logged into your brokerage platform, place a sell order for your SGS bonds.
You can choose the quantity to sell and the price you wish to sell at based on the current market conditions.
Lastly, wait for a buyer.
Your bonds will be sold on the SGX when a buyer matches your price.
Keep in mind that bond prices fluctuate based on market demand, so you may receive less than the face value if prices have fallen.
Who should invest in SGS bonds?
Conservative investors seeking low-risk, stable investments
If you’re looking for a safe, low-risk place to park your money, SGS bonds are backed by the Singapore government’s AAA credit rating, making them one of the most secure investments.
With fixed coupon payments and a guaranteed return of principal at maturity, they provide a stable and predictable income stream without the ups and downs of the stock market.
Retirees want a steady income without market volatility
SGS bonds offer semi-annual coupon payments, providing a reliable income stream.
Since SGS bonds aren’t subject to market volatility like equities, retirees can count on regular returns without worrying about losing their principal.
This makes them an excellent option for those seeking peace of mind in retirement.
Diversification seekers looking for safe, government-backed assets
Investors keen on diversifying their portfolio with stable, low-risk assets will find SGS bonds an ideal addition.
If your current portfolio is heavy on stocks, real estate, or other volatile investments, adding SGS bonds can help reduce overall risk.
Since the Singapore government fully backs these bonds, they offer a haven during market volatility, ensuring a portion of your portfolio remains secure and less exposed to market swings.
Those with spare cash lying around
If you have spare cash sitting idle in your bank account, investing in SGS bonds is a smart way to put that money to work.
Instead of leaving your funds in a savings account earning minimal interest, SGS bonds allow you to earn regular coupon payments while keeping your capital safe.
With a low minimum investment of just $1,000, it’s an accessible option to make your money grow, even if you don’t want to take on high risk.
Frequently Asked Questions
Are SGS bonds a good investment?
SGS bonds are a good investment for those seeking low-risk, stable returns.
Backed by the Singapore government, they offer predictable interest payments and full principal repayment at maturity.
While their returns are lower than equities, they provide security and reliability, making them ideal for conservative investors or those looking to diversify their portfolios.
How will I receive interest accrued from my SGS bond?
You will receive interest from your SGS bonds through semi-annual coupon payments.
These payments are automatically credited to your Central Depository (CDP) account or CPF/SRS account, depending on your chosen funding method.
Are Singapore Government Securities bonds risk-free?
While no investment is entirely risk-free, SGS bonds are extremely low-risk.
They are fully backed by the Singapore government, which holds a AAA credit rating, making the risk of default highly unlikely.
This makes them one of the safest investment options available.
Conclusion
SGS bonds offer a safe, reliable way to invest money while earning steady returns.
We’ve covered everything from what SGS bonds are, their benefits, and how you can buy them, whether through auctions or the secondary market.
We also touched on why they’re an excellent fit for conservative investors, retirees, and anyone looking to diversify their portfolio with low-risk assets.
If you’re still unsure whether SGS bonds are a suitable investment, that’s completely normal!
Investing can be tricky, and it’s important to make the right decision based on your personal goals.
If you have any doubts or just need some expert advice, feel free to reach out to one of our financial advisor partners.
They’ll be happy to help you.
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