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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. |
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GENERAL |
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PURCHASING AND SELLING SGS |
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1. |
What Are Singapore Government Securities (SGS)? |
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SGS are marketable debt instruments issued by the Government of Singapore through the Monetary Authority of Singapore (MAS). These debt instruments can be in the form of either Treasury bills or bonds. The Singapore Government is obliged to pay the holder of the Treasury bill or bond a fixed sum of money on the maturity date of the security. Thus, when you buy SGS, you are lending your money to the Singapore Government. Although SGS cannot be cashed in before their maturity dates, investors can always sell them in the SGS market. SGS primary dealers are prepared to buy and sell SGS at any time. |
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2. |
Why Does The Singapore Government Issue SGS? |
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Governments in other countries usually issue debt securities to raise the money needed to pay off maturing debt and finance their operating and development expenditure. However, as the Singapore Government operates on a balanced budget and does not need to borrow funds through the issuance of government bonds to finance its expenditure, the main objectives of issuing Singapore government bonds are to: |
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Provide a liquid investment alternative with little or no risk of default for individual and |
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institutional investors; |
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Establish a liquid government bond market, which serves as a benchmark for the |
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corporate debt securities market; and |
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Encourage the development of skills relating to fixed income financial services |
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available in Singapore. |
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3. |
What Is The Credit Rating Of The Singapore Government? |
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The long-term local and foreign currency debt ratings of the Singapore Government accorded by the various international credit rating agencies are listed below: |
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Moody's |
S&P |
FITCH |
R&I |
| Local Currency |
Aaa |
AAA |
AAA |
AAA |
| Foreign Currency |
Aaa |
AAA |
AAA |
AAA |
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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 ratings indicate that it has a relatively low probability of default on its local currency debt. |
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4. |
What Is The Difference Between A Treasury bill (T-bill) And A Bond? |
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T-bills are short-term securities that mature in one year or less from their issue date. T-bills are bought and sold at a price less than their face (par) value, and when they mature, the Government will pay the holder of the T-bill an amount of S$ equivalent to the face value of the bond. Therefore, the interest earned on the T-bill is the difference between the purchase price of the security and its face (par) value. The Singapore Government issues 3-month and 12-month T-bills.
Bonds are debt securities that pay a fixed rate of interest (called the coupon), usually every six months, for the life of the securities and then their face (par) values on redemption on maturity. In Singapore, SGS bonds are issued with maturities of 2, 5, 7, 10 and 15 years. |
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5. |
What Affects Debt Securities Prices? |
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The price of a bond or Treasury bill is what the market is willing to pay for it - it is the market's estimate of its value. While the price of the bond or Treasury bill is influenced by the demand and supply of the securities, it is also determined by macroeconomic factors such as expectations of future interest rate levels, and currency movements. Other factors like chart technicals and investor positioning also influence bond prices. Bonds that are selling at a price above their face value are said to be selling at a premium. Bonds with prices below face value are said to be selling at a discount. |
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6. |
What Is The Relationship Between Bond Prices And Bond Yields? |
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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$1000. Assume the bond does not pay any coupon1, so your yield to maturity is 11.1% at the moment: |
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[S$(1000-900) / S$900] x 100 = 11.1%.
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If the bond price falls to S$850, the yield to maturity on this bond will be higher: |
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[S$(1000-850) / S$850] x 100 = 17.6%
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Likewise, when the bond price rises to S$950, the bond's yield to maturity will fall: |
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[S$(1000-950) / S$950] x 100 = 5.3%
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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. |
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Bonds that do not pay coupons (much like T-bills, but with a longer maturity) are known as |
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zero-coupon bonds. Currently, there are no zero-coupon SGS bonds. |
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7. |
How Are SGS Issued? |
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The MAS issues SGS on behalf of the Singapore Government. SGS are sold at auctions, using a multiple-price or "pay-as-you-bid" auction format for T-bill auctions and a uniform-price format for bond auctions. Only the Primary Dealers (PDs) in the SGS market are allowed to submit bids at the auctions. However, should you wish to participate in the auctions, you can submit your bids through any one of the PDs or through any Secondary Dealers who will submit bids to the PDs on your behalf. You must bid in terms of percentage yield at an auction. You can either submit a competitive bid2 or non-competitive bid3 for T-bills and bonds. Non-competitive bids of up to S$1,000,000 per applicant for T-bills and S$2,000,000 per applicant for bonds are allowed and all non-competitive bids will be satisfied first. The balance of the amount to be issued is then awarded to those who have submitted competitive bids. |
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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 securities. You may or may not be allotted with the securities, depending on how good your price is relative to the prices submitted by all the other competitive bidders. |
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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 securities at a price |
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computed based on the results of the competitive tenders. All non-competitive bids are allotted in full, subject to the allocation limits stated above. |
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8. |
How Are SGS Priced At Auctions? |
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In a multiple-price SGS Treasury bill auction, if you take part as a competitive bidder, you pay the price you have indicated in your application for the securities allotted to you. If you choose to submit a non-competitive bid instead, you will pay the average price computed based on the results of all successful competitive applications.
In a uniform-price SGS bond auction, successful competitive bidders and all non-competitive bidders will be allotted the securities at a uniform yield, which is the highest accepted yield (also referred to as cut-off yield) of successful competitive bids submitted at the auction.
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9. |
How Are The Coupon Rates For Bonds Determined? |
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As all SGS bonds are issued via uniform-price auctions w.e.f. Apr 2003, the coupon rate for a newly issued SGS bond is the cut-off (or highest accepted) yield of successful competitive bids submitted at the auction, rounded down to the nearest 1/8%. |
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10. |
How Can I Find Out When An Auction Is Held? What About The Results? |
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At the beginning of the year, MAS will publish on the SGS website an issuance calendar specifying the dates on which SGS auctions will be held. Generally, MAS issues T-bills and bonds on a regular basis. The 3-month T-bills are issued weekly whilst the 1-year T-bills, 2-, 5-, 7-, 10- and 15-year bonds are issued according to the pre-announced annual calendar. Notices and results of bond auction are published both on the SGS website and also advertised in the newspapers. |
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11. |
What is a re-opening of a SGS issue? |
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At bond auctions, MAS may choose to issue a new bond or to re-open an existing bond as the new benchmark issue. Re-opening refers to the issue of an additional amount of an existing bond, on top of its existing outstanding size. |
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12. |
How is a re-opened bond different from a newly-issued bond? |
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A re-opened bond has the same maturity date and coupon rate as the original bond when it was issued. However, the remaining term-to-maturity of the re-opened bond will be different from that of the original 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.
Depending on prevailing interest rates at the time of the bond's re-opening, the re-opened issue may have a different yield-to-maturity ("yield") from its coupon rate. The yield of the re-opened bond and, hence, the price at which the additional amount of the bond will be issued are determined at the bond auction. As the bond is already being traded in the secondary market, its yield and, hence, price at the re-opening auction will be very close to its yield and price in the secondary market. Depending on the prevailing interest rates, its price at auction may be set at above, equal to, or below its face value, in which case the bond is said to trade at a premium, parity (or par) or discount respectively. In contrast, for a new bond issue, its coupon rate is determined at auction based on the cut-off yield of successful bids submitted at the auction rounded down to the nearest 1/8%. (See FAQ #9.) As such, the prices which successful bidders pay for the new bond will be at par or at a slight discount.
The table below shows how the price of a bond with a fixed coupon rate varies with its yields. For an investor, it is the yield, rather than the coupon rate, which provides a measure of interest return from investing in the bond. |
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Price-Yield Relationship for A 5-Year Bond with A Coupon Rate of 4% p.a.
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Yield-to-Maturity (% p.a.) |
Price ($) Per $100 Face Value |
Bond Is Said to Trade At: |
| Yield < Coupon |
3.0 |
104.60 |
Premium |
| Yield = Coupon |
4.0 |
100.00 |
Par |
| Yield > Coupon |
5.0 |
95.62 |
Discount |
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13. |
What Is The Minimum Investment Amount For SGS? |
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The minimum denomination of both SGS T-bills and bonds is S$1000. |
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14. |
Can My CPF Funds Be Used To Buy SGS? |
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You can use the full balance in your Ordinary and Special Account savings to buy Singapore Government and Singapore Statutory Board bonds. |
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15. |
Can Non-Residents Buy SGS? |
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There are no restrictions to non-residents purchasing SGS. Furthermore, for all SGS issued after 28 Feb 1998, interest on SGS earned by non-residents who do not have any permanent establishments in Singapore are also exempted from tax, as announced in the 1998 Government Budget. |
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16. |
How Do I Purchase SGS? |
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First, approach any participating bank that is a Primary Dealer or Secondary Dealer of the SGS market to open a SGS trading account. With this account, you can purchase SGS over the counter with these banks. As SGS are scripless, ownership of SGS is reflected as a book entry in the investor's account with the bank. If you wish to buy SGS at the primary auctions, you need to open accounts with and submit your bids through the PDs or through any Secondary Dealers who will submit bids to the PDs on your behalf. |
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17. |
Who Are The Primary Dealers Of The SGS Market? |
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The SGS Primary Dealers are appointed to play a role as specialist intermediaries in the SGS and S$ 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. |
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18. |
How Do I Make/Receive Payments For My SGS Transactions And Receive Interest Payments? |
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To facilitate payment/receipt of funds for the purchase/sale of SGS, you should open a separate savings/current account with the same bank that you have an SGS account with. Interest payments on SGS, which are paid out twice a year, are also credited to this account. |
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19. |
Where Are My Securities Kept? |
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SGS are scripless. This means that you are required to open an SGS account with a participating bank to facilitate the safekeeping and debiting/crediting of SGS. The bank will, in turn, maintain an SGS book-entry account with the MAS where their SGS holdings are custodised. |
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20. |
Can I Sell My Securities Before Maturity? |
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You can sell SGS over the counter with any Primary or Secondary Dealer. However, only PDs are prepared to buy and sell SGS under all market conditions. Prices may change from day to day, and it is important to know that you may not be able to sell your SGS for the same price that you paid for them. |
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21. |
How Do I Calculate The Returns On My SGS Investment? |
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There are different measures of returns for bonds. The conventional ones are explained below: |
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Coupon Rate, Current Yield and Yield to Maturity
The coupon rate of a bond is the interest rate paid on the nominal amount of the bond. If you bought a fixed rate 5-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.
The current yield of a bond relates its annual coupon interest to its market price. In the above example, if the market price of the 5-year bond 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%.
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. Therefore, the total gain for you is S$9. The bond's yield-to-maturity is (9 / 95 x 100)% = 9.47% from the present till the maturity of the bond.
Treasury Bills
Recall that 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 is (S$100-S$95) / 95 x 100 = 5.26%.
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22. |
Where Can I Obtain Daily SGS Prices? |
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Daily SGS prices are published on the SGS website. |
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