Sunday, June 01, 2008

Higher interest rate for Government bonds

Dear Mr, Tan,
The past week saw the drop in price of Singapore Government bonds. What is the reason for the drop and is this the right time to buy the 10 or 15 year bonds, considering that their yield is well over 3%? Are they not better than some of the single premium products offer by insurance companies?

REPLY
I do not follow the market in Government Bonds. I suspect that the drop in price is due to a general rise in interest rate. The world may be entering a period of higher inflation, which is being reflected in the increase in interest rate.

If the level of interest rate increases further, you may see a further drop in the bond prices. I do not know if this is the right time to buy Government bonds, as it depends on whether interest rate will rise further.

Perhaps, if you buy a bond for 3 to 5 years, it may be all right. However, the yield may be lower than 3%.

Here are the yields on Singapore Government bonds, taken from the Fundsupermart website:
http://www.fundsupermart.com/main/sgs/SGShome.tpl


Maturing   Remaining  Yield
year       duration
2011         3.1 yr   1.79%
2013         5.1 yr   2.51%
2018        10.2 yr   3.38%
2022        14.2 yr   3.39%
2027        18.7 yr   3.80%
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1 comment:

  1. AnonymousNovember 12, 2010 8:50 PM

    Everybody knows that residents of the United Kingdom find it difficult to save. Spending much more money than they save; according to research, saving money is not as popular as it once was. People seem to forget the importance of saving because accidents happen all the time and things happen that you may not expect what would happen if you didnt have the cash What would you do if interest rates rose and you had to fork out extra for your mortgage? What would you do if you suddenly had to travel to see an ill friend?

    Putting your funds away in a savings account can be a great source of funds in case of a emergency. It makes a great deal of sense to simply put away money into an interest bearing account for these types of events, instead of having to take out a loan or bill a credit card for them. If you do either of these things will result in more debt and higher interest payments.

    Savings Account Interest Rates

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