Beyond Singapore savings bonds and fixed deposits, what other low-risk investments are there?
THE PROS AND CONS
With their relatively higher yields, treasury bills and short-term SGS bonds are worth considering for investors looking to generate returns in volatile market conditions, financial advisers told CNA.
Fully backed by the government, they are also generally considered safe investments.
Investors are also likely to get the amounts they demand, unlike Singapore savings bonds which have seen smaller allotment sizes amid scorching demand, said Elijah Lee, associate director of services. financials of PhillipCapital.
Singapore Savings Bonds have a limit of S$200,000 per investor across different tranches, but for the August issue the quantity cap – applied when applications exceed the size of the issue – was 9 000 Singapore dollars.
Investors can contribute up to S$1 million for each application for treasury bills and S$2 million for each application for SGS bonds. Retail investors generally receive the amount they request, Mr. Lee said.
Also, there are no penalties for liquidating a Treasury bill or SGS bond before maturity, Mr Tan said, although he warned that doing so via a sale on the secondary market could involve a risk of capital losses.
Treasury bills and SGS bonds are negotiable debt securities, meaning they can be bought or sold on the Singapore Stock Exchange, but their prices are very sensitive to changes in interest rates. In general, bond prices and interest rates move in opposite directions, so if interest rates go up, bond prices go down and vice versa.
Besides market risk, liquidity could be an issue if there are few interested buyers.
“The bond market is not like the stock market…so it can be very difficult to find a taker,” Lee said. “You may have to offer a drastic price, a sort of fire sale…but you’re unlikely to be willing to lose that much, so you’ll probably keep it.”
He added: “Six months (for a treasury) may seem like a short time, but it can feel like an eternity if you’re caught in a sticky situation.”
And at maturity, Lee, who specializes in retirement strategies, said investors will have to start looking for investment options and deal with the possibility of interest rate risk.
Using the example of a six-month Treasury note, he said: “Rates have been very attractive, but after six months, what’s next?
“You’ll have to deal with the fact that every time you renew, you hope the rates are still good.”