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"Walk F.I.R.E. enter demon?" SSB, T-bill, "Fed up."

Friday, December 2, 2022

The Fed has spoken and does Mr. Market like it?

Well, to be clear, interest rates are not going down anytime soon.

In fact, interest rates will be going higher albeit at a slower pace.

Indeed, another 0.5% hike is expected this month and we could see another 0.5% in 1Q 2023.

However, in the near term, there is some celebration.

It is like being in a COVID 19 lockdown for too long and there is just so much pent up energy waiting to break free.

Human beings are like that.

Anyway, it seems that yields are all softer in the near term and we see this in the latest Singapore Savings Bond offer.

3.26% p.a. 10 year average yield.

This is lower than the 3.47% p.a. before.

In case some think it is not a big deal, it is a pretty big deal when we realize it is more than 6% lower.

If our boss tells us we are getting a 6% pay cut, I am sure we won't be happy.

Yes, for the gainfully unemployed like me, interest income is part of our income!

For most people who are unemployed, interest income could be their major source of income.

It is true that it is passive income and not earned income but it is income.

Still, I will be applying for this Singapore Savings Bond as the 10 year average yield remains above 3% which is what I need to see in order to park my funds originally meant for CPF voluntary contribution in the new year.

$14,000 is all that remains to be deployed and with the a lower 10 year average yield, I am hopeful that I will get full allotment.

Of course, it is hard to say what Mr. Market might do.

Those who applied for more mostly got $14,000 allotment for the 3.47% p.a. Singapore Savings Bond but they mostly got only $10,000 allotment for the 3.21% p.a. one before that.


Higher yield, people less interested.

Lower yield, people more interested.

I am confused.

How like that?

Anyway, for those who are interested like I am, remember to apply by 27 Dec 22.

What about the 6 months T-bill auction?

We will have to submit a bid by 8 Dec 22 if we are still interested in it.

AK doesn't sound too interested, does he?

You so clever to think so.

I think we can take a hint from the lower yield offered by the Singapore Savings Bond that the yield on the upcoming 6 months T-bill is probably going to be lower.

Of course, I could be wrong.

After all, my hopes for higher yields from the 6 months T-bills last month were dashed although the Singapore Savings Bond last month offered a higher 10 year average yield.

With people using their CPF OA money to chase higher returns from T-bills and with their opportunity cost so high compared to people using cash on hand, I expect yields for 6 months T-bill to soften further.

This is made more likely with more latecomers joining the bandwagon. 

So, what do I think the yield for the next 6 months T-bill might be?

3.8% p.a. smelly smelly or lower if the pong gets really intense.

As long as the CPF OA interest rate stays at 2.5% p.a., the 6 months T-bill could see yield trending lower as even 3.5% p.a. still makes sense.

Although it might seem stupid and irrational to some that these people bid very low in order to get full allotment, it really is quite rational.

It is very natural human behavior.

I could join the "madness" but the thought of having to get behind a long line at the bank is too off putting.

Anyway, for those using non CPF money like me, we can get higher returns from fixed deposits now.

With interest rates still on an upward trajectory, I expect fixed deposit rates to stay firm and eventually rise in tandem.

There is talk of interest rates possibly reducing in 2H 2023 or in 2024 because the world is probably going into a recession.

What does AK think?

I think I will believe it when I see it.

Crystal ball gazing is all very interesting to some people but I find it pretty boring because all I see is the crystal ball most of the time.

Well, when I am hallucinating, I might see something else.

For now, staying invested in income producing assets and having a meaningful fixed income component in my portfolio is still the strategy.

The strategy is boring and has not changed in years.

Yes, it doesn't make me rich quick like going big into cryptocurrencies has for some people but it is a sound and grounded strategy that is time tested.

Those who made a lot of money in some  more questionable cryptocurrencies and got out early must realize that they got lucky in a Ponzi scheme.

They might not be so lucky next time.

Most people crashed and burned because that is how Ponzi schemes work.

OK, the last few sentences just happened spontaneously.

Didn't plan to say anything like this as all I wanted to blog about was the upcoming Singapore Savings Bond and T-bills.

Alamak, getting old and nagging too much.

OK, I will stop.

Recently published:
1. 4% p.a. 6 months fixed deposit.
2. 50% don't have enough savings.
Achieving F.I.R.E. is not impossible.
See: 59% want to achieve F.I.R.E.
Just don't "walk fire, enter demon."

Singapore banks see higher investor interest in T-bills as inflation rises. CNA reports: 


Sandra said...

Please continue nagging, enjoy reading 😆

AK71 said...

Hi Sandra,

I am very happy you enjoy reading my blogs.

To inspire and to entertain.

That's all my blogs really set out to do.

Thanks to you, now, I know that my nagging is entertaining too. ;p

Siew Mun said...

While most are buying SSB and T-Bills, I have redeem my SSB and pivot to AA Reit since Sep. With my bond like CPF component at above $1m

Rellangis said...

Me too I love to read your blog :)
"smelly smelly and lower" phrase is so singlish hahaha

Winnie said...

✋🏻I also like to be nagged at 🤣

AK71 said...

Hi Siew Mun,

I agree that having a meaningful risk free and volatility free bond component in our portfolio gives us peace of mind which allows us to be more adventurous in building positions in income generating REITs and equities. :)

Although I have been buying SSBs and T-bills, it isn't done at the expense of my investments in REITs and equities.

The same goes for fixed deposits.

I am just moving money from maturing fixed deposits to SSBs, T-bills and new fixed deposits. ;p

Time flies and in about a month from now, I will be blogging about my activities in 4Q 2022 and full year 2022 passive income. :)

1M50 CPF millionaire in 2021.

AK71 said...

Hi Rellangis,

I love it that you love reading my blog. :D

I love Singlish and since my blog's audience is almost 100% Singaporean, I can be more easy going. :)

AK71 said...

Hi Winnie,

I don't know if I like nagging but I just do it.

It seems that I do it more as I grow older.

I always tell my family that if I don't care about them, I wouldn't nag at them.

I wish my family members share your sentiments. ;p

keng said...

Hi AK,

For T-bills, with the lower expected rates, maybe more people will play hard to get and submit competitive bids > 4% and play hard to get and push up this upcoming interest yield?

Will bank promotional FD rates also fall in tandem with the falling interest rate?

Just speculating, for fun of course :P

AK71 said...

Hi keng,

Singapore's interest rates are largely influenced by the interest rate in the U.S.A.

As the Fed has indicated that they will continue to increase interest rate albeit at a slower pace, I expect interest rates in Singapore to stay firm and rise in tandem.

Expectations are for the U.S.A. to reach peak interest rate sometime in 1H 2023.

Banks in Singapore are likely to continue offering higher promotional interest rates for fixed deposits just like how they will definitely increase interest rates on their customers' home loans.

This is my guess, of course.

As for T-bills, because the yield is determined by auction, it is harder to say, as I suspect people using CPF OA money will continue to put in low bids in order to ensure they get 100% allotment as their opportunity cost for failure is relatively high.

This is a reason why I feel the yield on T-bills this month could be softer.

Having said this, you have piqued my interest.

I might just try my luck but it would be a small bet. ;p

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