Treasury bills and short-term government securities bonds – the next low-risk investment option?


THE PROS AND CONS

With their comparatively higher yields, T-bills and short-term SGS bonds are worth considering for investors looking to generate returns amid volatile market conditions, financial advisers told CNA.

Fully backed by the Government, they are also generally considered safe investments.

It is also likely that investors will get the amounts they apply for, unlike the Singapore Savings Bonds which have seen smaller allotment sizes amid red-hot demand, said PhillipCapital’s associate financial services manager Elijah Lee.

The Singapore Savings Bonds have a limit of S$200,000 per investor across different tranches, but for the August issue, the quantity ceiling – applied when applications exceed the issuance size – was S$9,000. 

Investors can put in up to S$1 million for each T-bill application and S$2 million for each SGS bond application. Retail investors typically get the amount they apply for, said Mr Lee.

In addition, there are no penalties for liquidating one’s T-bill or SGS bond before maturity, said Mr Tan, although he cautioned that doing so via a sale in the secondary market might carry the risk of capital losses.

T-bills and SGS bonds are tradable debt securities, meaning they can be bought or sold on the Singapore Exchange, but their prices are highly sensitive to interest rate movements. In general, bond prices and interest rates move in opposite directions so if interest rates rise, bond prices will fall and vice versa.

Apart from market risk, liquidity could be an issue if there are few interested buyers.

“The bond market is not like the stock market … so it can be very hard to find a taker,” said Mr Lee. “You may have to offer a drastic, fire-sale kind of price … but it is unlikely that you are willing to lose that much so you will probably just hold on to it.”

He added: “Six months (for a T-bill) may seem like a short time, but it can feel like an eternity if you’re caught in a sticky situation.”

And upon maturity, Mr Lee, who specialises in retirement strategies, said investors will have to start shopping around for investment options and face the possibility of interest rate risk.

Using the example of a six-month T-bill, he said: “The rates have been very attractive but after six months, what’s next? 

“You will have to contend with the fact that every time you renew, you are hoping that the rates are still good.”



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