News – ST

Bid for S’pore govt securities via ATMs

INVESTORS will be able to apply for Singapore Government Securities (SGS) – debt instruments in the form of either Treasury bills (T-bills) or bonds – by using ATM machines from the first of July.

The securities ride on the strong credit strength of the Singapore Government and have, arguably, not been very accessible to retail investors.

Up to now, retail investors have only had exposure to them through money market funds, primary dealers like the three local banks, or secondary dealers, such as stockbrokers.

With effect from July 1, individuals can apply for SGS via all DBS Bank, United Overseas Bank and OCBC Bank ATMs.

With the changes – officially announced by Monetary Authority of Singapore chairman Goh Chok Tong last Friday – investors can head to ATMs to submit bids once an auction announcement has been made on the SGS website (www.sgs.gov.sg).

The bids can be either competitive or non-competitive.

A competitive bid is one where a bidder has to specify the price he is willing to pay for the securities and is allocated securities if his bid is high enough in comparison to others. A non-competitive bid is one where the bidder does not specify a price.

The price is expressed in terms of percentage yield.

Similar to an Initial Public Offering (IPO) application, investors will need a valid individual Central Depository (CDP) account number. Minimal administrative fees will also be charged by CDP.

Investors can sell SGS via the three local banks.

Issuing SGS allows the Singapore Government to raise money from the public, who get a fixed sum of money upon maturity. Bonds, for example, pay a fixed rate of interest every six months for the life of the securities and the investor gets the principal back upon maturity.

Experts say the latest move will give investors easier access to a liquid and safe investment alternative – though not necessarily a better return on one’s principal.

For example, a one-year T-bill yields 0.35 per cent a year, while a one-year fixed deposit with DBS yields 0.45 per cent a year. But investors may face penalties should their fixed deposits be terminated early.

‘One difference between an SGS and a fixed deposit is the potential for capital appreciation offered by the former, which fixed deposits cannot offer,’ said OCBC group wealth management vice-president, Mr Vasu Menon.

Like other bonds, the value of SGS is inversely related to the interest rate. If interest rates go down, bond prices go up because bonds pay what is now a comparatively higher fixed interest rate.

Another advantage is that SGS are backed by the strong financial standing of the Singapore Government.

‘SGS can and should be part of a retail investor’s portfolio as it’s the highest quality local issuer,’ said Barclays Capital managing director Peter Hu.

On a broader level, the move to make SGS more accessible is seen as good news for the industry and for the markets.

‘We believe this will encourage more liquidity, and there’ll be greater activity,’ said Mr Abel Thio, Citibank Singapore’s primary dealer in SGS.

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