News – BT

Trading of govt bonds on SGX for retail investors by mid-year

A safe and higher-yielding alternative to bank deposits

BY mid-year, retail investors should be able to trade in Singapore government bonds – an eagerly awaited development for risk- averse savers.

Yesterday in Parliament, Finance Minister Tharman Shanmugaratnam said Singapore Government Securities (SGS) will begin trading on the Singapore Exchange (SGX) by the middle of this year, providing retail investors with a safe and higher-yielding alternative to bank deposits. Retail investors have since 2009 been able to take part in the SGS auctions via ATMs in minimum amounts of $1,000, but if they wanted to trade in them subsequently, they had to do so at selected bank branches.

In preparation for this year’s trading launch on the stock exchange, SGX’s Central Depository has been a custodian of individual investors’ SGS holdings since April 1 last year.

Mr Tharman said retail investors concerned about the low savings rates can also participate in government bond auctions or buy high-quality corporate bonds that are now traded in smaller lot sizes on the exchange.

Most bank savings pay between 0.1 and 0.25 per cent. At yesterday’s auction of three-month SGS, the median yield was 0.29 per cent.

The consumer price index inflation for November 2010 was 3.8 per cent year-on-year – the highest since January 2009 – with many economists expecting it to rise further this year from wage pressures, higher food and fuel prices and sharp hikes in vehicle certificate of entitlement (COE) premiums .

‘Inflation should peak at 4.8 per cent in December, but may remain stubbornly high at above 4 per cent in Q1, such that there remains a real risk that full-year inflation will breach the upper end of the MAS forecast of 2-3 per cent,’ said Wei Zheng Kit, Citi economist.

He said drivers include wage inflation from strong demand and policy-induced supply-side constraints, which would show up in services costs, fuel and food prices, rents and COE premiums. The likelihood of further tightening in 2011 by the Monetary Authority of Singapore (MAS) remains high in his view, Mr Wei added.

Mr Tharman said that inflation is expected to rise further in the first quarter of this year before moderating in subsequent quarters.

Last year, SGX said SGS will begin trading by the first quarter of this year as part of its programme to expand bond offerings to retail investors.

Last week, CapitaMalls Asia joined a small but growing coterie of corporates like Singapore Airlines and DBS Group Holdings to offer bonds to retail investors with its sale of $200 million worth of one-year and three-year bonds.

The one-year bonds maturing next year offer a return of one per cent per annum. The three-year bonds maturing in January 2014 carry an annual interest rate of 2.15 per cent.

Tng Kwee Lian, SGX head of fixed income, said the exchange is continuing to enhance its infrastructure to build the retail bond space.

She said companies are keen to tap on the SGX bond market as an alternative funding platform and she expects more to issue retail bonds given the strong market demand and interest.

‘To build a vibrant bond market, SGX will continue to enhance its infrastructure to facilitate bond listings and trading, and expand its product range to include Singapore Government Securities (SGS). Recently, we have successfully put in place our first liquidity provider for some of the retail bonds to enhance market liquidity. This means investors can buy and sell easily at fair valuation,’ said Ms Tng.

SGX will also hold a new series of bond seminars starting this month to help investors understand bond investing.

Topics covered include bond investment, bond holders’ rights via trustee of the bond issuance, and the mechanics of bonds. These seminars are being conducted via SGX Academy and details can be obtained from the website (www.sgxacademy.com).

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