Govt retail bonds likely to start in H2

A new government bond is on the way that offers investors two unusual benefits - steadily rising interest rates and the ability to cash out at any time without penalty.

Normally, bonds have a fixed interest rate and investors can find themselves out of pocket if they redeem them early and the market price is less than their initial price.

This new product - Singapore Savings Bonds - is taking a different approach.

The bonds, which will be issued monthly, likely starting in the second half of the year, aim to provide a long-term, low-cost savings option that offers safe returns, said the Monetary Authority of Singapore (MAS) yesterday.

They are targeted at retail investors with a minimum investment of just $500, with additional multiples of $500 up to a cap to be announced later.

The bonds were first mentioned by Senior Minister of State for Finance and Transport Josephine Teo last week.

The bonds will have a term of 10 years. At any time during this period, investors will be able to cash out with no penalty and receive their initial outlay with accrued interest. Although the principal is guaranteed by the Government, the interest rate received will be lower than if the bond had been held for 10 years.

The bonds cannot be traded on the secondary market.

Interest on the bonds will be linked to long-term Singapore Government Securities (SGS) rates. While SGS bonds pay the same interest every year, Singapore Savings Bonds will pay coupons that step up over time.

As a comparison, the 10-year SGS has mostly yielded between 2 and 3 per cent over the past 10 years.

Securities Investors Association of Singapore's president and chief executive David Gerald said: "The Singapore Savings Bonds provide Singaporeans with a government-guaranteed savings product that has a return that is above the inflation rate which is also capital guaranteed. In addition, the indicative rates are above the current fixed deposit rates offered by the local banks."

Would-be bond investors who have been deterred by the traditionally high minimum investment amount - $250,000 in many cases - might find Singapore Savings Bonds "an ideal addition to their investment portfolio", said Jeremy Soo, head of DBS Bank's Singapore consumer banking group.

chiaym@sph.com.sg

whwong@sph.com.sg

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