HDB 5-Year Bonds Review – What Is It? And Should I Buy? (Dec 2021)

Anyone who’s on the lookout for new ways to invest is already sick of the constant chatter about crypto. Some of us would rather invest in something less heart-attack inducing.

If that’s the case for you, the newly issued HDB bonds might have piqued your interest. In November 2021, the HDB issued S$1 billion worth of 5-year bonds with a fixed coupon rate of 1.645% p.a.

This is not the first time HDB is issuing bonds. As recently as May 2021, the HDB issued a similar offering of bonds—S$900 million worth of 10-year bonds. In 2020, they likewise issued S$800 million worth of 10-year bonds.

You might already be familiar with Singapore Savings Bonds (SSBs). HDB bonds, conversely, don’t seem to get much attention. Here’s what you need to know.

What are HDB bonds?

Bonds are a kind of financial instrument enabling governments or corporations to raise money. Because unlike what everyone thinks, tax revenue from car COEs is not enough to pay for all of the infrastructure on this island.

In other words, bonds like SSBs and HDB bonds are issued in order to raise funds for the government or stat board’s projects—in the HDB’s case, we can safely assume that the money will be used directly or indirectly for HDB’s housing projects.

When a bond is issued, investors can buy it in exchange for payment of interest, also known as a coupon. The money the investors pay functions as a “loan” to the government, in exchange for which the government will pay interest at regular intervals.

But every loan has to be repaid. When a bond “matures”, it will be redeemed, meaning the government will repay the money it owes (this amount may vary depending on the terms of the bond).

In the case of the newest batch of HDB bonds, the bonds will mature in five years from the date of issuance. Over the five year period, they will offer a fixed coupon rate of 1.654% p.a, paid out twice a year.

Another thing you should know is that bonds can be bought and sold, and their prices rise and fall according to demand and supply, so investors will try to buy low and sell high. Some bonds can also be redeemed before the maturity date (ie. “sold back” to the issuer) if you wish to cut short your investment.

Fixed Coupon Rate vs Interest Rate: What’s the difference?

We usually use the term “coupon” instead of “interest” to refer to a bond’s interest rate. But is there really a difference?

A bond’s coupon rate is usually set in stone when the bond is issued. In the case of the HDB bonds, it’s going to be a fixed, non-negotiable 1.654% p.a. for the entire lifespan of the bond.

The term “interest”, on the other hand, is usually used when we talk about more straightforward forms of debt like home loans. Even the neighbourhood loanshark uses the world “interest”.

Unlike bond coupon rates, interest rates don’t have to be fixed. For example, if you have a floating interest home loan, you might already be familiar with the roller coaster ride that is opening your bill every month and praying the interest rate hasn’t risen by too much.

What Are Credit Ratings For Bonds?

Governments and stat boards are far from being the only ones issuing bonds.

In fact, there are some downright dodgy companies issuing bonds to raise money. For instance, the notorious Evergrande issued junk bonds in an attempt to to stop itself from going under.

A few agencies issue credit ratings to rate the credit worthiness of bonds. The ratings indicate how reliable the issuing governments or corporations are as borrowers. Are they going to obediently pay up what they owe, or are they going to pull an Evergrande?

Moody’s is one of the best known credit rating agencies in the world. Their ratings go from AAA to C. A company that’s rated C is in grave danger or defaulting.

And… they have awarded the HDB an AAA. Yes, the HDB is the teacher’s pet of the credit rating world and can do no wrong.

In other words, the HDB bonds are extremely low risk. On the downside, lower risk bonds usually do not pay great coupon rates, not much higher than some of the best fixed deposit rates.

Prices of HDB issued bonds in the past

To give you an idea of the kinds of coupon rates and prices typical of HDB bonds, here are the current prices of past bonds issued by the HDB.

Bond maturity date	Coupon rate (% p.a.)	Price (SGD)
21 Feb 2022	2.23	100.3
25 Apr 2022	2.185	100.524
28 Aug 2022	1.825	100.932
30 Aug 2022	2.088	101.12
29 Jan 2023	2.5	102.079
27 Feb 2023	3.63	103.57
13 Mar 2023	2.303	101.989
24 Jul 2023	2.42	102.497
10 Aug 2023	1.91	101.718
20 Nov 2023	2.55	103.052
22 May 2024	2.164	102.583
27 Jun 2024	2.505	103.46
24 Jul 2024	1.147	105.033
21 Nov 2024	2.25	102.942
25 Nov 2024	1.75	101.484
17 Sep 2025	2.625	104.497
11 Mar 2026	2.495	104.265
16 Sep 2026	2.035	102.243
1 Dec 2026	3.22	107.902
24 Feb 2027	1.76	100.86
25 May 2027	2.35	103.85
24 Jan 2028	2.32	103.992
16 Mar 2028	1.37	98.284
12 Oct 2028	1.54	98.963
22 Jan 2029	2.675	106.564
29 Jan 2029	3.948	115.070
16 Jul 2029	2.27	103.845
30 Oct 2029	2.598	106.325
31 May 2030	3.08	110.415
24 Jun 2030	1.265	96.119

Singapore Savings Bonds vs HDB Bonds

Unlike SSBs, bonds issued by HDB are not considered to be issued by a sovereign (ie. the Singapore government). That’s because HDB is just considered a statutory board and not the government itself.

That said, as mentioned earlier, the government plays a big role in making sure the HDB stays afloat financially. While the government is not able to offer a 100% guarantee over all of the HDB’s debts, it has historically been quite good about helping them out of a financial bind, and in a worst case scenario we can probably expect them to step in and lend the HDB money or fund its deficits.

Both the Singapore government and the HDB have received an AAA credit rating which means there is almost no risk of them failing. Unfortunately, both also do not offer terribly high coupon rates or yields, so both SSBs and HDB bonds should be seen as a low risk, low return investment.

But what’s the most important difference to laypeople like you and me?

It’s that HDB bonds come with a minimum investment quantity of $250,000. Yes, you’re not dreaming. These bonds are targeted at institutional investors like banks, rather than lowly retail investors like us.

SSBs, on the other hand, are meant for retail investors, with a minimum investment amount of $500.

How to Buy HDB bonds?

At the moment, HDB bonds are not targeted at retail investors like you and me.

However, that doesn’t mean you can’t exposure to them. You can do so by investing in funds or unit trusts that in turn invest in HDB bonds.

You can also buy other bonds SSBs on an exchange like SGX.

To do so, simply sign up for a brokerage account. The broker should indicate whether you need to open a separate CDP account or whether they can hold your assets in a custodian account.

Once your account has been approved, simply transfer cash and then buy your bonds on SGX using the broker’s platform.

 

Hopefully, the fact that you won’t be buying HDB bonds anytime soon is not the only conclusion you’ve reached from this article.

HDB bonds might be out of the picture, but there’s nothing stopping you from buying SSBs or other corporate and government bonds. SSBs can be a good way to balance risk in some portfolios.

To get started, sign up for an online brokerage. If you’re a beginner or would prefer not to take on too much risk, try trading on a paper account first or go for lower risk asset classes like bonds and mutual funds.