As one of the few remaining triple-A credit-rated governments in the world, the Singapore government issues bonds and bills that are naturally highly sought after, particularly during a volatile and high-interest rate environment.
Individuals and institutions can invest in several different types of bonds and bills. While all of these instruments can be referred to as Singapore Government Securities, they differ from one another.
Singapore Government Securities (SGS) Bonds
Singapore Government Securities (SGS) bonds are tradable debt securities that pay a fixed, semi-annual coupon. They typically have maturities of 2, 5, 10, 15, 20, 30, or 50 years. Being tradeable means that you can buy and sell such bonds on the secondary market (i.e., from another investor) or on the Singapore Exchange (SGX) instead of only purchasing them from the Singapore government.
There are three categories of SGS bonds: SGS (Market Development), SGS (Infrastructure), and Green SGS (Infrastructure).
The SGS (Market Development) is the most common type of SGS. The government issues it with the primary objective of developing the domestic debt market in Singapore. The maturity for these bonds usually ranges from 2 years to 30 years.
For 2024, the cut-off yield for SGS (Market Development) is generally at around the 3% level.
The SGS (Infrastructure) & Green SGS (Infrastructure) are a newer type of bonds that are issued under the Significant Infrastructure Government Loan Act 2021 (SINGA). These bonds are meant to finance major, long-term infrastructure development. The maturity of these bonds can be as long as 50 years.
One key difference between the SGS (Infrastructure) & Green SGS (Infrastructure) bonds and other types of Singapore government securities is that the funds received from the issuing of the SGS (Infrastructure) & Green SGS (Infrastructure) bonds can be used to finance government projects.
Read Also: 4 Things To Know About The New SINGA Bonds Issued By MAS
Treasury Bills (T-bills)
T-bills are also a type of Singapore Government Securities, the key distinction being that they are short-term in nature. The government issues 6-month and 1-year T-bills. Instead of paying a semi-annual coupon like the longer-term SGS, T-bills are issued at a discount to their face value, with investors receiving the bond’s full face value at maturity. There are no coupon payments for T-bills.
This means that the difference between the issue price of these T-bills and the bond’s face value is the return that investors receive. For 2024, T-bills are trading at a cut-off yield of around 3.5%
For both the SGS Bonds and T-bills, investors can invest using cash, SRS funds or CPF Investment Scheme funds to invest. You can also buy or sell SGS Bonds and T-bills on the secondary market at DBS, OCBC or UOB.
Read Also: Treasury Bills (T-bills): What Are They And How You Can Buy Them
Singapore Savings Bonds (SSB)
Introduced in 2015, the Singapore Savings Bonds (SSB) aims to provide individual investors with a long-term savings option that offers safe returns. The SSB hopes to encourage individuals to save and invest to meet their long-term financial goals and retirement needs. Individuals aged 18 and above can apply for it, with a maximum holding of $200,000.
Unlike SGS Bonds and T-bills, SSBs are non-traded securities that protect individuals from capital loss. Investors can redeem the bonds from the Singapore government at any point, with their principal repaid and any accrued interest. However, because SSBs are non-tradeable, we can’t buy or sell them on the open market to other investors.
As of 25 September 2024, the SSB provides an average return of 2.77% if held over 10 years.
Read Also: Complete Guide To Buying Singapore Savings Bonds (SSB)
Special Singapore Government Securities (SSGS)
Special Singapore Government Securities (SSGS) is a non-marketable bond primarily issued to the CPF Board.
Under the arrangements between the Singapore Government and the CPF Board, surplus CPF funds are placed with the Government through the central bank, the Monetary Authority of Singapore (MAS), for subscription of SSGS.
Singapore Government Securities Are Backed By The Singapore Government
All of the abovementioned bonds and bills issued by the Singapore government are also backed by the Singapore Government. This means that the government must pay investors the capital plus interest.
With the exception of the SGS (Infrastructure) & Green SGS (Infrastructure) bonds, which are used by the government to fund long-term development projects, all of the borrowing proceeds from the issuances of these government securities are invested. Under the Government Securities Act, the monies raised from the Singapore Government Securities cannot be spent.
This article was first published on 18 October 2023 and has been updated with the latest information.
The post Complete Guide To Understanding The Different Types Of Singapore Government Securities appeared first on DollarsAndSense.sg.
