News – BT

No rush for govt securities through ATMs

Lack of awareness, low yields and low publicity possible contributing factors

RETAIL investors are unlikely to rush to snap up Singapore Government Securities (SGS) via ATMs due to a lack of awareness, low yields and low publicity.

‘It may take some time for SGS application via ATMs to take off,’ Wong Sui Jau, general manager of Fundsupermart, says of the recent launch. ‘I don’t expect the retail investor response to be overwhelming at this stage.’

He believes that Singaporean retail investors are relatively ‘foreign’ to the bond market at present and therefore less likely to jump on the bandwagon.

Nicholas Tan, head of group wealth management at Consumer Financial Services, expects a reasonable retail response to SGS via ATMs. ‘There has not been much publicity on this.’

DBS has found the response to be encouraging, said a bank spokeswoman.

The Monetary Authority of Singapore launched SGS application via the ATMs of the three local banks on July 1 to provide greater accessibility to retail investors. Previously, many retail investors were put off by the cumbersome application system at major banks that were primary dealers.

‘Based on what we have seen, they enjoy the convenience of submitting bids through DBS and POSB’s network of more than 930 ATMs,’ said a DBS spokeswoman.

According to Mr Wong, whether the securities are a good investment depends on the mentality of individual investors and what they are prepared to sacrifice in terms of opportunity cost.

‘The question is whether the returns are attractive,’ he said. ‘The yields at present are very low. The highest being 3.2 per cent for a bond with 17.6 year maturity. Perhaps, if the yields increase, investor interest will also increase, although not by a substantial amount.’

He advises against SGS instruments for retail investors who intend to make market timing-related investments. ‘The yields are already very low,’ he said. ‘To make a profit, they need to drop even lower. I’m not sure how low they will go.’

On the other hand, if investors plan to hold SGS instruments to maturity, they will have a certain profit in terms of yield.

With interest rates on savings and fixed deposits also low, the securities may be a good alternative for investors looking for a stable, low-risk instrument with potentially higher returns than bank savings.

Having the Singapore Government as issuer provides financial security. Investors consider SGS instruments to be a relatively safe and low-risk way of adding stability to a portfolio.

‘There is definitely a market for investments that are close to zero risk,’ Mr Wong said. ‘It is even safer than bonds sold by local banks.’

At industry level, the general sentiment among investors is that the Monetary Authority of Singapore has made a strategic move by giving retail investors greater accessibility to the SGS market.

‘Generally, any avenue that opens the market is good for investors,’ said Mr Wong. ‘It is likely to increase the liquidity of the bonds as well.’

News – BT

A simple but solid option

THE move to allow individuals to participate in Singapore government bond auctions at ATMs from today cannot come soon enough. It presents a welcome option for anyone who wants almost absolute security on their savings albeit at slightly lower yields, while at the same time, paving the way for these instruments to be traded on the Singapore Exchange.

Singapore Government Securities (SGS) have long been available to small investors, but many are put off by the cumbersome application system. Previously, the average retail investor can only apply for these bonds by queuing at a major bank that is a primary dealer, filling up forms and opening a custodian account.

Depending on the time of day, this can take up to half an hour; and sometimes, one meets a less than enthusiastic officer. The primary dealers, after all, do it as a form of ‘national service’ and do not make any brokerage on the transaction.

Many small investors will now find the simplicity of an ATM transaction attractive, especially given that SGS instruments can be bought in denominations of just $1,000. The latest initiative appears to be targeted at the retail investor who wants safety in a plain vanilla package. There is clearly room for this, given the Lehman Brothers Minibond collapse. And it can be very successful if a comprehensive structure evolves that allow individuals to actively manage their SGS holdings in an easy and uncomplicated way.

This means going beyond merely ATM applications for SGS. For a start, this can perhaps be expanded to allow individuals to also access their SGS holdings in addition to just applying for them.

The next step is to allow online transactions such as buying and selling of SGS instruments with direct debit and credit facilities into one’s bank account. After all, under the plan, successful applicants for SGS through the ATMs will have their holdings reflected in their central depository or CDP accounts. This move away from a bank’s custodian account will open the way for investors to sell and buy government bonds like equities on the exchange, just like the bonds issued by various government bodies such as JTC Corp, the Housing & Development Board and the Land Transport Authority.

All this will obviously require some fine-tuning on how bid and offer prices for retail players are formulated by the various primary dealers. These prices will differ from those quoted between primary dealers as the lot sizes are very much smaller.

The labelling of the various instruments also needs to be simplified for ease of transaction. A percentage-based transaction fee with a nominal minimum for those who trade just $1,000 and higher for large amounts could be set to help cover the additional costs of running this added application.

A public education campaign is also needed to help investors understand how SGS instruments work. A lot of useful information is already available on the Monetary Authority of Singapore website, but reinforcing this with readily available literature and an expanded website will greatly benefit potential bondholders. One important addition can be charts showing historical data on interest rates for the past 10 years.

A lot of work clearly is needed to take SGS ATM transactions beyond the application stage and improve market accessibility, but it will be worthwhile. The local bond market has so far been relatively inaccessible to the man in the street as corporate bonds often trade in denominations of $250,000 while those from statutory boards trade in $10,000 lots.

But the current financial crisis has demonstrated the need for safer options for more risk adverse investors. At the height of the financial crisis some months back when even big financial institutions were worried about counter-party risks, many individuals were at a loss as to where to park their hard-earned money. The equity markets were down and even good solid bluechip counters saw large price corrections. Investors in seemingly safe Reits also saw drops of 50 per cent.

The average yield on the latest SGS two-year bond is just 0.55 per cent, although investors may choose instruments of much longer duration to benefit from a higher yield (at a higher risk). Unlike equities, SGS also show very small capital price movements and the interest earned can be lower than dividend yields from some good companies.

But they are as safe as safe can be: after all, SGS are issued and backed by the triple A-rated Singapore government with its impressive reserves. And for some segments of investors, this is what they need.

Of course, you can lose money even on SGS. If the world’s economy recovers strongly in a few years’ time, for example, bondholders may find themselves out of the money due to rising interest rates. They may end up with a bond that still has some years to maturity and the option of selling out at break even or even at a loss.

But it will be nothing like the losses incurred by thousands when Lehman Brothers collapsed!

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.