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Individual Investors

Frequently Asked Questions- Individual Investors

This list of FAQs provides individual investors a general overview of the SGS market. For more information on investment in SGS, you may want to consult your investment adviser or any of the SGS primary dealers.

Introduction

1. What are Singapore Government Securities (SGS)?
2. What are the types of SGS?
3. Why does the Singapore Government issue SGS?
4. Are SGS investments considered safe?
5. When are SGS issued?
6. How are SGS issued?
7. What role do Primary Dealer banks play in an SGS auction?
8. What is the difference between competitive and non-competitive bids in SGS auctions?
9. How are coupon rates for SGS bonds and discount rates for T-Bills determined during an auction?
10. What is a reopening of an SGS issue? How are reopened SGS different from newly-issued SGS?
11. What affects SGS prices?
12. As an individual investor, where are my SGS investments custodised?

Purchasing and selling SGS

13. What is the minimum investment amount for SGS?
14. Can my CPF funds be used to buy SGS?
15. Can non-residents buy SGS?
16. Are capital gains and interest from SGS taxable for individual investors?
17. Where can I purchase SGS?
18. How do I differentiate between the different T-Bill tenors?
19. How do I make/receive payments for my SGS transactions and receive interest/principal payments?
20. What are the specific features of the coupon payments?
21. Can I sell my SGS before maturity?
22. Where can I obtain daily and historical SGS prices?
23. Are there any fees for individual investors custodising SGS with CDP? How will I be paid the coupon and principal repayments?

Calculating returns on SGS investments

24. How do I calculate the returns on my SGS investments?
25. What is the relationship between bond prices and bond yields?

1. What Are Singapore Government Securities (SGS)?
Singapore Government Securities (SGS) are marketable debt instruments of the Government of Singapore. These debt instruments take the form of either Treasury bills (T-bills) or bonds, and are considered safe investments, as they are backed by the full faith and credit of the Singapore Government. The terms of issuance for T-bills and bonds are governed by the Local Treasury Bills Act and the Government Securities Act respectively.

The Singapore Government is obliged to pay the holders of SGS a fixed sum of money on the maturity date of the securities. SGS cannot be cashed in before their maturity dates, but investors can always sell them in the SGS market. SGS Primary Dealers are prepared to buy and sell SGS at any time during normal market trading hours.

As the fiscal agent of the Government, the Monetary Authority of Singapore (MAS) acts to undertake the issue and management of SGS on its behalf.

2. What Are The Types Of SGS?
T-bills are short-term debt securities that mature in one year or less from their issue date. They are bought and sold at a discount, i.e. at a price less than their face (par) value, and when they mature, the Government will pay the holder an amount of S$ equivalent to the face value of the security. Therefore, the interest earned on the T-bill is the difference between its purchase price and face (par) value. They are denominated at nominal values of S$1,000 and traded at a rate of discount basis. The Singapore Government issues T-bills of 3-month, 6-month and 1-year maturities.

SGS bonds are longer-term debt securities, which pay a fixed rate of interest (called the coupon) every six months for the life of the securities and then their face (par) values upon redemption on maturity. They are generally not issued at a discount unlike T-bills, and have typical maturities of 2, 5, 10, 15, 20 and 30 years.

The most recently issued SGS bonds in each of these tenors are typically known as the benchmark securities and tend to be more actively traded. Older and more seasoned SGS bonds become off-the-run issues and tend to be less actively traded. SGS bonds are also denominated in nominal values of S$1,000 and traded on a price basis expressed in terms of S$100 principal.

Summary Table on SGS

	T-Bills	Bonds
Issuer	Singapore Government	Singapore Government
Tenor	3 months, 6 months, 1 year	2, 5, 10, 15, 20 and 30 years
Interest Rate	Discount	Fixed Coupon
Coupon Payments	N/A	Every six months
Minimum Denomination	S$1,000	S$1,000

3. Why does the Singapore Government issue SGS?
Unlike many other countries, the Singapore Government does not need to finance its expenditures through the issuance of goverment bonds as it operates a balanced budget policy and often enjoys budget surpluses.

Singapore Government Securities (SGS) were initially issued to meet banks' needs for a risk-free asset in their liquid asset portfolios. Following efforts to enhance the efficiency and liquidity of the SGS market by MAS in 1998 as part of its strategy to develop Singapore as an international debt hub, the market has since grown significantly, making it one of the fastest developing bond markets in Asia. Currently, the SGS are issued primarily to:

Proceeds from SGS issuance are instead paid into a Government Securities Fund, from which any interest and principal repayments on the SGS are withdrawn. A document summarising the details of the Singapore Government's borrowing portfolio and its unique nature can also be accessed here.

build a liquid SGS market to provide a robust government yield curve for the pricing of private debt securities;
foster the growth of an active secondary market, both for cash transactions and derivatives, to enable efficient risk management; and
encourage issuers and investors, both domestic and international, to participate in the Singapore bond market.

4. Are SGS investments considered safe?
The long-term local and foreign currency debt ratings of the Singapore Government accorded by the various international credit rating agencies are listed below:

	Moody's	S&P	Fitch	R&I
Local Currency	Aaa	AAA	AAA	AAA
Foreign Currency	Aaa	AAA	AAA	AAA

These international credit rating agencies assess a country's ability to meet financial commitments, such as interest payments or repayment of principal, on a timely basis. Singapore's consistent ratings indicate that it has a very strong credit rating with a minimal probability of default on its local currency debt obligations. From the perspective of individual investors, this means that SGS are among the safest possible investments to hold, and the principal value of their SGS investments is preserved if held to maturity. Individual investors should note that SGS sold before maturity will be at prevailing market prices that can be higher or lower than the purchase price.

5. When Are SGS Issued?
The 3-month T-bills and 6-month T-bills are issued fortnightly on alternating weeks. The issuance dates for the 3-month T-bills and 6-month T-bills can be found at on our website.

The 1-year T-bills and bonds are issued according to an issuance calendar published at the beginning of the calendar year. The calendar is accessible here.

6. How Are SGS Issued?
SGS T-bills and bonds are issued to the market via auctions.

Auctions for the 3-month T-bills and 6-month T-bills are conducted on Mondays. Prior notice is given on the SGS website generally three business days before the auction.

Auctions for the 1-year T-bills and bonds typically take place three business days before the respective issuances. Prior notice is given on the SGS website generally one week in advance.

All SGS are auctioned using a uniform price auction. Successful bids (whether competitive or non-competitive) will be allotted at the same uniform yield, which is the highest accepted yield (cut-off yield) of successful competitive bids submitted at the auction.

Summary Table on SGS Auctions

	T- bills	Bonds
Auction Format	Uniform Pricing (for competitive/non-competitive bidding)
Frequency	Fornightly for 3M T-bills and 6M T-bills; 1Y T-bills will follow Issuance Calendar	Depends on Issuance Calendar
	In Yield Terms
Bid Format
Typical Issue Size	S$2 - 4 billion	S$ 2 - 3 billion for benchmark issues
Accounting	Book Entry
Eligibility	All entities and individuals, including non-residents
Cut-off Time	By noon on auction day

7. What Role Do Primary Dealer Banks Play In A SGS Auction?
Only Primary Dealer banks participate directly in the SGS auctions; the total amount of their bids will reflect not just their own bidding interest, but also those bids taken on behalf of individual investors and Secondary Dealers. The SGS Primary Dealers are appointed to act as specialist intermediaries in the SGS and S$ money markets. Primary Dealers are obliged to provide liquidity in the SGS market by quoting prices on all SGS issues under all market conditions. Click here for a list of the Primary Dealers and their contact information.

8. What Is The Difference Between Competitive And Non-Competitive Bids In SGS Auctions?
In an SGS auction, participants can choose between submitting a competitive or non-competitive bid.

A competitive bid is one where you have to specify the price (to be expressed in terms of percentage yield) that you are willing to pay for the SGS. You may or may not be allotted the securities after the auction, depending on your submitted yield relative to the yields submitted by all the other competitive bidders. In the context of SGS auctions, a lower yield represents a more competitive bid as the bidder is indicating that he/she will accept a lower interest rate.

A non-competitive bid is one where you do not specify a price (to be expressed in terms of percentage yield) but you are willing to be allotted the SGS at a uniform yield based on the results of the competitive tenders. All non-competitive bids will be satisfied first, and the balance of the amount to be issued is then awarded to those who have submitted competitive bids. In all SGS auctions, 40% of the total issuance amount is reserved for non-competitive bids – if the amount of non-competitive bids exceeds the 40%, the SGS will be allocated to non-competitive bidders on a pro-rated basis.

9. How Are The Coupon Rates For SGS Bonds And Discount Rates For T-bills Determined During An Auction?
SGS bonds have been issued via uniform-price auctions since April 2003. The coupon rate for a newly issued SGS bond, also known as the primary issuance, is the cut-off (or highest accepted) yield of successful competitive bids submitted at the auction, rounded down to the nearest 0.125%, or 0.125%, whichever is higher. Should the coupon rate be lower (or higher) than the cut-off yield, the purchase price would be lower (or higher) than 100% of the bid amount. The difference would be credited (or debited) into/from the individual investor's bank account. For T-bills, the cut-off yield is not rounded down, and is equivalent to the discount rate.

10. What Is A Reopening Of A SGS Issue? How Are Reopened SGS Different From Newly-Issued SGS?
MAS may choose to issue a new SGS bond or to reopen an existing bond as a benchmark or non-benchmark issue. Re-opening refers to issuing an additional amount of an existing bond on top of its existing outstanding size in the market. This existing bond would already be available in the secondary market and its market price would take into account capital gains and accrued interest. Only SGS bonds (not T-bills) are subject to reopening.

The difference between newly issued and reopened SGS bonds is that even after the auction, reopened bonds retain the same maturity date and coupon that they had when they were first issued. If an existing bond is reopened as a benchmark issue, the remaining term-to-maturity of the re-opened bond will be different from that of the original benchmark bond. For instance, MAS re-opened an existing 5-year bond issue N500100X as a 2-year benchmark bond on 1 November 2002. When N500100X was first issued on 1 February 2000, it had a term-to-maturity of 5 years, but when it was re-opened as the 2-year benchmark bond on 1 November 2002, it had a remaining term-to-maturity of 2 years and 4 months.

11. What Affects SGS Prices?
The price of a SGS bond or T-bill is what the market is willing to pay for it - it is the market's estimate of its value. While the prices of SGS ultimately reflect the balance between the forces of demand and supply, several factors underpin the market’s pricing assessment. Macroeconomic factors such as expectations of future interest rate levels and currency movements, technical pricing analysis and tactical positioning all have an influence over SGS prices. SGS that are selling at a price above their face value are said to be selling at a premium, while those with prices below face value are said to be selling at a discount.

12. As An Individual Investor, Where Are My SGS Investments Custodised?
Individual investors who purchase SGS issued after 1 July 2009 will have their holdings custodised via book entry at the Central Depository (CDP) instead of with the SGS agent banks. With CDP, individual investors will have the advantage of a dedicated SGS custodian, that offers the convenience of a consolidated account statement for their S$ equity and SGS holdings. Individual investors must have an existing individual CDP account to invest in SGS. It is free of charge to open a CDP account – find out more at http://www.sgx.com/wps/portal/sgxweb/home/depository.

13. What Is The Minimum Investment Amount For SGS?
The minimum denomination to purchase SGS is S$1000, and you can invest in multiples of S$1000.

14. Can My CPF Funds Be Used To Buy SGS?
Under the CPF Investment Scheme (CPF-IS), you can use the full balance in your Ordinary and Special Account savings to buy SGS. Applications using CPF funds have to be made in person at applicable bank branches. For more information about CPF-IS rules, go to http://mycpf.cpf.gov.sg/Members/home.htm.

15. Can Non-Residents Buy SGS?
There are no restrictions to non-residents purchasing SGS. Both Singaporeans and foreign residents can invest in SGS and T-bills.

16. Are Capital Gains And Interest From SGS Taxable For Individual Investors?
Capital gains are not taxed in Singapore, and SGS interest income accrued to individual investors is currently exempt from tax. Furthermore, for all SGS issued after 28 Feb 1998, interest on SGS earned by non-residents who do not have any permanent establishments in Singapore is also tax-exempted.

17. Where Can I Purchase SGS?
Only Primary Dealers (PDs) in the SGS market are allowed to submit bids at the SGS auctions. However, should you wish to participate in the auctions, you can submit your bids through any of the PDs or Secondary Dealers who will submit bids to the PDs on your behalf.

You may purchase SGS at primary auctions or in the secondary market.

i) At a Primary Auction

After the auction announcement, the most convenient way for most individual investors to submit bids for SGS is through the DBS, POSB, UOB and OCBC ATMs. For the weekly 3-month T-bill and fortnightly 6-month T-bill auctions, the application window at the ATM is typically open between Wednesdays 6pm to Fridays 9pm. Individual investors should check with their banks on the exact closing date for SGS application throught these channels. Similar to an IPO application, you will need a valid individual CDP account number and your bank account will be debited for the full bid amount at the point of application.

For reopened bonds, the amount debited will be 115% of the bid amount to take into account capital gains and accrued interest, since the market price of the reopened bond is only known after the auction. If the purchase price of the reopened bond is lower (or higher) than 115% of the bid amount, the difference would be credited (or debited) into/from the individual investor's bank account.

After an auction, successful bidders will receive a statement notification from CDP, typically the next business day after the issuance date.

ii) In the Secondary Market

From 8 July 2011, investors can trade SGS bonds in the secondary market on the Singapore Exchange (SGX). As SGS are custodised with CDP, you may buy SGS bonds through your stockbroker, using the same individual CDP and securities trading account that you have for trading stocks on SGX. Trading SGS bonds on SGX would incur transaction and brokerage costs. For more information, you may refer to http://www.sgx.com/fixedincome/sgs.

If you wish to buy or sell T-bills in the secondary market, you can approach the branches of any of the SGS dealer banks (typically DBS, OCBC and UOB) to buy/sell your holdings at the most competitive market price available.

18. How Do I Differentiate Between the different T-Bill tenors?

One way to differentiate between the different T-bill tenors is via the issue code, which is unique to each SGS. The issue codes for 3-month T-bills start with "BQ" while those of the 6-month T-bills start with "BS". For the 1-year T-bills, the issue codes begin with "BY". The table below illustrates the different issue codes:

T-bill Tenor	Illustrative Issue Code	Issuance Frequency
3-month	BQ12345A	Fortnightly
6-month	BS12345A	Fortnightly
1-year	BY12345A	Semi-Annually

19. How Do I Make/Receive Payments For My SGS Transactions And Receive Interest/ Principal Payments?
For primary auction applications via the ATM, payment will be deducted from the account that you use to make the application. Interest and principal payments on SGS are paid to the bank account associated with the individual investor’s CDP account. For secondary market transactions, to facilitate payment/receipt of funds for the purchase/sale of SGS, you should open an account with the bank or broker that you intend to transact with.

20. What Are The Specific Features Of The Coupon Payments?
SGS bonds carry a fixed semi-annual coupon. In the event that the payment date falls on a public holiday, the coupon payment will occur on the next business day.

For coupon accruals, the interest generally accrues from the previous coupon date (inclusive) to the settlement date (exclusive). SGS trades ex-coupon three working days prior to the coupon date.

21. Can I Sell My SGS Before Maturity?
Yes. From 8 July 2011, you can sell SGS bonds (bought either with cash or CPFIS-OA funds) on the Singapore Exchange (SGX). Please ensure your holdings are first custodised with CDP before transacting on SGX. T-bills can be sold over the counter with any Primary or Secondary Dealer. Prices may change from day to day according to market conditions, and it is important to note that you may not be able to sell your SGS for the same price that you paid for them.

22. Where Can I Obtain Daily And Historical SGS Prices?
The latest SGS prices are published once a day and are available from 6:00pm at this link. This represents the average of the day’s transacted bid rates obtained from the brokers.

Historical SGS prices can also be found here.

23. Are There Any Fees For Individual Investors Custodising SGS With CDP? How Will I Be Paid The Coupon And Principal Repayments?
With effect from 1 April 2013, CDP will remove the administrative fees of 0.08% (8 basis points) of the face value of the SGS per annum. More information can be found here.

The following examples illustrate the yield obtained by individual investors from their T-bill and SGS investments without any administrative fee charges. Please also refer to Questions 24 and 25 for a more detailed discussion on measuring the yield on your SGS investments.

Example: T-bill auction on 8 June 09 with a cut-off yield of 0.25%

An investor holds the latter T-bills of nominal value S$10,000 for a period from 1 - 90 days.

Approximate return to the investor = S$(0.0025 x $10,000 x ¼) = S$6.25

The approximate annual yield obtained = (6.25 x 4)/10,000 = 0.25%

Example: 10Y bond auction on 27 May 2009 with a cut-off yield of 2.53%

An investor holds bonds of nominal value of S$10,000 for a period from 1 day - 6 months.

Approximate (annual) return to investor = (0.0253 x $10,000) = S$253

The approximate annual yield obtained = 253/10,000 = 2.53%

24. How Do I Calculate The Returns On My SGS Investment?
There are different measures of returns for bonds.

1) One simple way of calculating bond return is to take into account capital and interest gains.

If you bought a fixed rate 10-year bond paying a 4% coupon with a face value of S$100, you will receive semi-annual interest equal to (S$100 x 0.04 / 2) = S$2.00.

(i) Assume you had bought the bond at a primary auction at S$100 and sold it 1 year later.
(a) If the bond had appreciated in price to S$102,
Return = [(102-100)+4]/100 *100 = 6%

(b) If the bond had fallen in price to S$98,
Return = [(98-100)+4]/100 *100 = 2%

(ii) If the bond was a reopening instead of a new issue, the coupon rate would have already been set. The purpose of the auction is then to determine the yield, which would impact the amount paid up-front for the bond. If the yield comes out lower than the coupon rate, the amount paid for the bond would be higher than S$100, and vice versa. Again using the above 4% coupon bond, assume that it had been re-opened at a yield of 3.5%. Because the yield is lower than the coupon rate, the price paid would have to be higher, at S$105. If the bond fell in price to S$103 one year later and you sold it, Return = [(103-105)+4]/105 *100 = 1.90%

2) The current yield of a bond relates its annual coupon interest to its market price. If the market price of a 10-year bond with a 4% coupon is S$98, its current yield would be (4 / 98 x 100%) = 4.08%, which is more than the coupon rate of 4%. Conversely, if its market price is S$102, the current yield would be (4 / 102 x 100%) = 3.92%, which is less than the coupon rate of 4%.

3) Yield-to-maturity, by far the most widely used return measure in the bond market, combines the coupon income of a bond and the capital gain or loss from holding the bond to maturity. It also considers the timing of the bond's cash flows and interest-on-interest, although it assumes that the coupon payments can be reinvested at an interest rate equal to the yield-to-maturity. As a very simple example, assume that you bought a bond with 1-year left to run at a price less than the face value of the bond e.g. S$95. The coupon interest of the bond is S$4. The capital gain at maturity is (S$100-S$95) = S$5.00. Therefore, the total gain for you is S$9.00. The bond's yield-to-maturity is (9 / 95 x 100)% = 9.47% from the present till the maturity of the bond.

Treasury bills do not have coupon payments and are issued at a discount. Therefore, the yield that you get upon the maturity of the bill is the difference between the purchase price and the maturity price. For example, if you pay S$95 for a Treasury bill with a face value of S$100 at an auction for a 1-year Treasury bill, your yield to maturity, or amount earned if you hold the bond for one year, is (S$100-S$95) / 95 x 100 = 5.26%.

25. What Is The Relationship Between Bond Prices And Bond Yields?
Bond prices and yields move in opposite directions. To illustrate this concept, let us assume that you are holding a bond of 1-year maturity that you bought at S$900. At maturity, you will receive your principle of S$1,000. Assume the bond does not pay any coupon, so your yield to maturity is 11.1% at the moment:
[S$(1,000-900) / S$900] x 100 = 11.1%.

If the bond price falls to S$850, the yield to maturity on this bond will be higher:
[S$(1,000-850) / S$850] x 100 = 17.6%

Likewise, when the bond price rises to S$950, the bond's yield to maturity will fall:
[S$(1,000-950) / S$950] x 100 = 5.3%

Intuitively, if you bought your bond when interest rates were at 4%, a rise in interest rates to 6% will mean that you will be able to sell your bond at a lower price than what you paid for it. This is because investors can buy new bonds that will give them a higher yield (i.e. 6%). The price of your bond will therefore decline. On the other hand, if interest rates fell, investors will find your bond attractive relative to new bonds with lower yields. Therefore, the price of your bond will rise. For a more visual interpretation of the relationship between a bond's price and its yield, please visit our site's Bond Calculator.

Frequently Asked Questions- Individual Investors

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