[You can download the SSB rates estimation Excel from the Resources page]
When deciding how much SSB to buy, a question to consider is "will next month's issue offer better rates?" Thankfully, the mechanisms involved in SSB calculations are more or less transparent, and mostly available in its Technical Specifications document (SSB main page -> Investor Guide -> Investing in Savings Bonds -> Product Information -> Resources and FAQs -> Technical Specifications).
First, find the Singapore Government Bonds Benchmark Yields. Go to the MAS website -> Statistics -> Bonds and Bills Statistics -> SGS Statistics -> Historical SGS Prices and Yields - All Issues. Set the Start Year and Month to the current year and previous month, set the End Year and Month to the current year and current month, and set Frequency to "Daily". Scroll down to the section "Average Buying Rates of Govt Securities Dealers", select the boxes for 1-Year T-Bill Yield, 2-Year Bond Yield, 5-Year Bond Yield, 10-Year Bond Yield. Scroll back up and press "Download". The date range to use should be the calendar month before the SSB issue opens for application. For example, to calculate the SSB rates for the SBAUG22 issue (open for applications from 1 Jul 2022 to 26 Jul 2022), use SGS data from 1 Jun 2022 to 30 Jun 2022. To predict the SSB rates for the SBSEP22 issue (open for applications from 1 Aug 2022 to around 26 Aug 2022), use SGS data from 1 Jul 2022 to 31 Jul 2022. In this example, we will try to estimate the yields for the SBAUG22 issue using data from 1 Jun 2022 to 30 Jun 2022.
The 1/2/5/10-year effective rates for the SSB should be pegged to the average of the 1/2/5/10-year SGS yields in the downloaded csv file. The rates for the in-between years are calculated using Hermite Spline Interpolation. This is done in the SSB rates estimation Excel sheet with the variables calculated step-by-step so that it'll be easier for those who are trying to learn more about it.
To use the Excel, simply copy-paste the relevant data from the csv file to the "Input - SGS Yields" sheet (take care to paste the data in the correct columns / cells), and the results should be in the "Results - SSB rates" sheet.
Now, the actual published SSB rates are as follows:
We see that there are slight differences. First, there may be rounding errors. The Technical Specifications document allows for rounding errors up to +/- 0.03%. However, the biggest factor here is that we have not accounted for the adjustments to keep the yearly rates monotonically increasing. I'm still trying to replicate these adjustment calculations but either I'm doing something wrong, or Excel's built-in solver can't really handle 9 degrees of freedom. That said, the 10-year effective rate should always match the 10-year SGS Benchmark Yield (subject to +/- 0.03% rounding errors, of course).
With that, we can leave the domain of Maths and get back to application (phew!). I like to do this estimation around the 25th of every month, using SGS rates from 1st to 25th of the month. This allows me to somewhat estimate the SSB rates for the following month. If it's higher than the current one, I may decide to buy less of the current issue and wait for the next one. If it's lower, I can still apply for the current issue (application typically closes around the 26th-27th every month). One important point to note, though: when the rates are high, the bond may be oversubscribed, so you may be allocated less than what you applied for. You don't want to wait 6 months while tracking the rates, apply for $50,000 worth of an SSB during a month with good rates, and end up getting only $15,000 worth of SSB, $35,000 refund, and a whole lot of wasted time and opportunity cost. Personally, I prefer to spread my purchases out across a few good months, instead of going all-in during the single month with "best" rates.
Hope that's useful, and have fun!
Comments