SGS Bonds at ATMs

From 1st July 2009, investors can bid for SGS Bonds using ATMs. This will be similar to bidding for shares at the IPO of a company. Since the first announcement by Senior Minister Goh Chok Tong, the ATM bidding details has been released.

The process of bidding for SGS Bonds is different from purchasing bonds through a secondary dealer like Fundsupermart as described in a CashBench post earlier. Before participating in these auctions, CashBench readers will need to at least have a basic understanding of the SGS Bonds auctioning process.

All bids for SGS Bonds can either be competitive or non-competitive. When we place a competitive bid, we need to specify the price we are willing to pay for the SGS bonds being auctioned, and the dollar amount we want to bid for. Depending on the final auctioned price, we may or may not get the SGS bonds we bidded for.

“A non-competitive bid need not specify a price, but there is a limit to the amount we can bid for…”

On the other hand, a non-competitive bid need not specify a price, but there is a limit to the amount we can bid for, currently S$2 million for SGS bonds. After every auction, successful competitive bids are allocated first, which means a non-competitive bid may not be allocated fully or even partially.

Why bother to auction for SGS Bonds through ATMs instead of Fundsupermart? The key benefit that CashBench can see is the ability to bid for every new issue or re-issue of SGS Bonds, resulting in a wider variety of bonds to choose from. In addition, for those who already approach banks to place their bids for SGS Bonds instead of Fundsupermart, using the ATM will be much more convenient.

SGS Bonds are typically issued every 1 to 3 months. For the dates where SGS bonds will be issued for the rest of 2009, CashBench readers can refer to the issuance calendar on the SGS website. Since ATM bidding will start from 1st July, the first SGS Bond that we can expect to bid will be the 15-year SGS Bond (issue code NY09100H) to be auctioned on 1st Sep. Investors can start bidding once an auction announcement is made on the SGS website.

To proceed with ATM bidding, CashBench readers must have an account with the Central Depository (CDP) and can access one of the 3 local banks' ATMs. For successful bidders, they can hold on to their SGS Bonds until "maturity" or sell these over-the-counter via the three local banks at a later date. To familiarise yourself with SGS Bonds before a bid or purchase, CashBench has an introduction on SGS Bonds for your reference. From there, you can head to the SGS website maintained by the Monetary Authority of Singapore for the full works.

“SGS Bonds may eventually be traded on SGX … CashBench will however add this will not happen anytime soon …”

In the Straits Times article that reported on SM Goh’s announcement earlier, it mentioned SGS Bonds may eventually be traded on SGX like stocks. CashBench will however add this will not happen anytime soon until the public has a better understanding of SGS Bonds and invest in it much more frequently. Without frequent transactions, SGS Bonds is unlikely to be traded on SGX unless dealers are obliged to post buy-and-sell prices at all times as is currently done for warrants. So, for those who’re keen on SGS Bonds, take your pick of ATM bids, online via Fundsupermart, or at a bank in person.

Finally, you may have noticed that CashBench did not discuss on SGS bills, which "mature" in less than a year. That’s because the gain/profit you can expect from SGS bills are much closer to savings accounts or fixed deposits rates. There is therefore less reason to go out of our way to invest in SGS bills.

P/S: Minor updates to this post done after details of ATM bidding is released and reported by Straits Times on 30 Jun 2009.