Traditionally, investment bonds are hardly the stuff of casual conversation. You won’t find your insufferable colleague bragging endlessly about how much money he made with his Singapore Savings Bonds. But that looks set to change now that Temasek Holdings is offering its first retail bond, called T2023-S$.
Previously, Temasek bonds were open only to institutional investors (entire companies, for example) who can cough up hundreds of thousands of dollars. The new Temasek bond, however, will be open to retail investors, i.e. people like you and me, with a low minimum investment of $1,000.
So, should you buy the new Temasek bonds like there’s no tomorrow? Probably, yes. Read on for the details.
The new Temasek bond has GUARANTEED returns of 2.7% p.a.
Hands-down, the most exciting thing about Temasek Holdings’ new bond is that it has a guaranteed return of 2.7% p.a.
If you’re a seasoned investor, you might be sniffing at this number. Indeed, 2.7% p.a. is not much compared to the annual returns you can get with other investment vehicles like REITs and SGX stocks which can go up to the double digits.
But that’s not a fair comparison, because those high-yield investments are far from risk-free. There’s no guarantee that their yields will continue forever. Also, even if they manage to pay you high dividends consistently, they don’t guarantee that your principal will be returned safely to you.
On the other hand, the Temasek bond’s principal and 2.7% p.a. return are “unconditionally and irrevocably guaranteed by Temasek” (from their press release).
Plus, Temasek Holdings is owned by the Singapore government, i.e. it will never die. It doesn’t take a genius to figure that Temasek has the highest credit rating possible by international standards. In short, the new Temasek retail bond is virtually risk-free.
What other risk-free investments are there?
Well, is a risk-free 2.7% p.a. investment a big deal? Let’s see how it compares to other vehicles in Singapore that offer guaranteed returns.
|Investment vehicle||Expected returns||Lock-in period|
|Temasek retail bonds||2.7% p.a.||Up to 5 years|
|High interest savings account||2% to 2.95% p.a.||None but they require you to take various actions|
|SGS bonds||1.86% to 2.88% p.a.||Huge variation from 1 to 20+ years|
|Singapore Savings Bonds||1.8% to 2.48% p.a.||Up to 10 years|
|Fixed deposits||Up to 1.8% p.a.||1 year|
Others to consider are CPF top-ups and savings/endowment plans offered by insurers, but these are very much long-term investments so I decided to exclude them.
As you can see, 2.7% p.a. is high, but not so high as to knock our collective socks off.
For example, it’s possible to get a better return with a savings account or the right SGS bond. However, the former requires you to jump through a whole lot more hoops and the latter takes a bit more investing know-how to finagle.
Considering you can be completely hands-off after purchasing the Temasek bond, the return of 2.7% p.a. is actually pretty good.
Temasek retail bonds vs Singapore Savings Bonds
To illustrate my point, let’s compare the Temasek bonds with everyone’s favourite Singapore Savings Bonds.
The two are extremely similar. They’re both risk-free (government-linked/backed) bonds, you can buy them easily, returns are automatically paid out every 6 months, and they both take no maintenance at all. Perfect for hands-off investors or those who just want somewhere to park their spare cash.
Throughout the 5-year tenure, the Temasek bonds offer consistently higher returns:
|Tenure||Temasek retail bond returns||SSB average interest per year*|
* based on latest Singapore Savings Bonds (Nov 2018)
The difference is more stark in the first few years. In general, Temasek retail bonds beat SSBs hands down, but especially so in the short term.
Since Singapore Savings Bonds have a climbing interest structure, the average annual interest can goes up to 2.48% p.a. if you hold SSBs to maturity. This is closer to but still cannot beat the Temasek bonds.
Apart from returns, another key difference is liquidity. Should you need the cash, Temasek bonds can be sold off like shares on SGX any time you like. (Which also means that you have the opportunity to make a capital gain, though we wouldn’t count on it.)
Finally, there’s a limit of $100,000 per person for total SSBs, and you might find this restrictive. There’s no limit that I know of for bonds.
Temasek retail bonds vs Astrea IV bonds
Hang on, wasn’t there ANOTHER Temasek Holdings bonds that created quite a fuss when it was released earlier this year?
Yup, that would be the Astrea IV bonds, which IPOed in June 2018. These private equity bonds, which were issued by Temasek Holdings subsidiary Azalea Asset Management, boast a higher but NON-GUARANTEED return of 4.35% p.a.
|Tenure||Temasek bond returns (guaranteed)||Astrea IV bond returns (non-guaranteed)|
|5 years||2.7%||4.35% + possible 0.5% “performance bonus” if you redeem|
As with Singapore Savings Bonds, you can choose to hold on to Astrea IV for up to 10 years for potentially higher returns.
The main difference is in risk and credit rating. The expected returns for the Astrea IV bond are just that – expected. Ultimately, nothing is guaranteed. Even your principal investment is not guaranteed. And no amount of complaining to Temasek Holdings or Azalea will bring it back.
Also, since the bond is offered by Azalea, not Temasek Holdings, it’s a little poorer in terms of credit rating.
Despite these risks, Astrea IV bonds are considered a low-risk investment vehicle as the risk is highly diversified. It’s just not ZERO risk.
You can use CPF to invest in Temasek retail bonds
The new Temasek bonds are eligible under the CPF Investment Scheme (Ordinary Account). Got your attention, didn’t I?
The 2.7% p.a. is a slight boost over the present CPF OA interest rate of 2.5% p.a.
If you are thinking of growing your CPF to keep up with the ever-increasing CPF retirement sum, then it makes total sense to use CPF OA savings to purchase the Temasek retail bond, since there’s virtually no risk. You can use up to 35% of your investible CPF savings to apply.
However, be aware that both your principal and dividends flow back straight into CPF. You’ll be richer on paper and closer to your retirement goal, but you can’t take your dividends and celebrate at Hai Di Lao (at least not right away).
For more about the CPF Investment Scheme, read this article.
How to buy the new Temasek Holdings retail bond
From now until 12pm on 23 Oct 2018, you can apply for the new Temasek Holdings bond through DBS/POSB, UOB or OCBC ATMs or internet banking. Apart from a bank account with one of these 3 local banks, you will also need a CDP account to apply. Find out how to open a CDP account here.
If you want to use CPF to buy the bond, you need to open a CPF Investment Account with DBS, OCBC or UOB first. Read this article on CPFIS for more details on that.
The minimum investment is $1,000, and you can buy bonds in denominations of $1,000.
Temasek Holdings is offering up to $200 million of their new bond to retail investors, but you can expect the response to be pretty feverish, so there’s a chance it’ll be oversubscribed. If it is, you might not get the full amount you applied for. Any refund will be done from 24 Oct 2018 onwards.
Should you miss the initial offering window, the Temasek bonds will be listed on SGX at 9am on 26 Oct 2018 onwards, and you’ll be able to buy them like regular stocks.
The new Temasek retail bonds – awesome or underwhelming? Tell us what you think!