This is the auction result
Singapore Saving Bonds SBJAN23 GX23010Z results was released at 3pm today. Let’s look at the result released at 3pm today.
This Savings Bond was allotted using the Quantity Ceiling format. Applicants who applied for S$172,500 or lower were fully allotted, subject to the individual allotment limits.
Applicants who applied for S$173,000 or higher were allotted either S$172,500 or S$173,000.
Approximately 95.93% of these applicants were selected at random and allotted the additional S$500.
It’s been a long while since we see this kind of result. 909.7 million applied out of the 900 million offered by MAS. Everyone will get $173000! This is highly in contrast if we compared to the last month application demand of $1.7 billion worth of application. I actually expected the demand to drop but didn’t expect so much.
This simply mean demand = supply. SSB is always oversubscribed with not enough to goes around to all applicants even with the rate rise this year.
What does this mean for the market? What does this mean for the saver?
Let’s do a comparison
The fairest comparison with SIngapore Saving Bonds would be the recent Treasury Bill. The auction result was with the cut-off yield is 4.28%. Total amount allocated is 4.4 billions out of the 11.8 billion applied. This mean 37.2% are allocated. Out of these 37.2%, 1.6 billion are given to the non-competitive applications (see this post for more details).
For treasury bill, it is still oversubscribed. However, the current SSB is demand = supply? What does this mean? I can think of 3 possible reasons. Let’s see.
Possible reason 1:
The market is no longer interested in the 2.95% rate given by MAS. Investor demands for higher rates. They could get much better rate from other more liquid solution such as Fixed Deposit, Money Market Funds etc that I have mentioned in my past post Best places to put Liquid Cash now. Hence, not many people want to apply for SSB now.
Possible reason 2:
An increase in interest rates can lead to a decrease in liquidity in the market. When interest rates rise, the cost of borrowing money increases, which can lead to a decrease in demand for loans. This can lead to a decrease in the supply of credit, which can in turn lead to a decrease in the overall liquidity of the market.
Does this mean that there is not enough cash liquidity left in the current market. However, if you see the treasury bill, it is still oversubscribed. What do you think?
A “liquidity crunch” is a situation in which there is a lack of funds available for financial institutions or investors to meet their financial obligations or to carry out transactions. This can occur when there is a sudden increase in the demand for cash or a decrease in the supply of cash.
If there is a liquidity crunch, it means market will have issue should there be a crash next year.
Possible reason 3:
It is a freak, unusual or unexpected outcome of an auction result; it just happened that people thought no one will apply and no point to apply so much since SSB always oversubscribed for the past few issues. Hence, people just subscribed less since they thought they won’t be able to get everything anyway. This is similar the last second issue of Treasury bill where the result was 4.4% yield. Hence, is this just a freak result?
How did I fare?
As mentioned in my last post Singapore Savings Bonds SBJAN23 GX23010Z: A Safe and Secure Investment, I have redeemed my old issues and reapplied new issues. Hence, effectively I have managed to refresh my liquidity funds for higher rates 🙂
Which case would it be?
Your guess is as good as mine. No one would know currently but we may find out soon enough. If you notice the recent market, 10 years treasury yield is increasing again. Recession risk also increasing.
For me, I am keeping some cash to wait. It will be sad if you have no cash to buy when asset price become cheap. Patience is a virtue. It is a good quality to have if you want generational wealth.
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