My thoughts on T2023-S$ Temasek Bonds

Following on from the Astrea IV private equity bond issue in June, Temasek Holdings has made the latest tranche of Temasek Bonds (known as T2023-S$ bonds) available for retail investors to subscribe. Personally, I’m not a fan of bonds due to my risk profile, but I support any move to convince more Singaporeans to invest / diversify away from property investments. So here’s a quick overview of the Temasek Bonds and a comparison to its competitors that are available to retail investors.

More information and offering circulars on the T2023-S$ bond can be found here.

Product Overview

Features

Tenure: 5 years
Maturity: 25 October 2023 (expected)
Interest rate: 2.70%
Interest payment: Semi-annual payments
Credit ratings: Aaa (Moody’s), AAA (S&P)
Minimum application: $1,000 or higher, in increasing multiples of $1,000
Application period: 17 – 23 October 2018

How to Apply

The process is pretty much the similar to applying for Singapore Savings Bonds (SSBs). You just need a CDP account and a bank account with the 3 local banks to apply through the following channels:

Application channels

Sample application screens:

DBS application

DBS Internet banking application

OCBC application

OCBC Internet banking application

Comparisons

For the purposes of this comparison, I will only look at bond options easily available to retail investors as well as examine the main risks associated with bonds – Default risk and Interest rate risk.

Comparison

SSB figures based on Nov 2018 SSB issuance

As you can see, the Temasek bond provides a slightly better yield compared to SSBs for a similar level of risk. If you compare the SSB’s 5 year yield of 2.12%, it is a much better bond for you if you have a 5 year bond timeline.

The main downside of the Temasek bond is the relative lack of flexibility should you wish to sell your bonds before maturity as you are subject to market forces. Given that interest rates is expected to continue to rise, the value of your bond in the market is likely to continue to drop as the years go by. However, this is not a concern if you hold to maturity.

Astrea IV and Corporate bonds are comparatively riskier due to the assets backing the bond is not as strong compared to Temasek bonds. However, you are compensated accordingly by the much higher yield.

My thoughts

The Temasek bonds is a mid term low risk investment instrument, as such you should avoid using the Temasek bonds as a vehicle to park your emergency funds or funds you expect to use within the next 5 years.

As for CPF funds, I may consider using CPF OA funds for a little bump in interest but definite not use SA funds as Temasek bonds are lower yielding. Personally, I would avoid using OA funds as well as 0.2% more interest is not worth the effort. I’ll rather keep the funds to boost my equity warchest when the market becomes depressed.

Other than the above, if you are prepared to hold to maturity, Temasek bonds can be a useful tool in your portfolio if you have a low risk profile and are using it as a instrument for capital preservation.

Remember to make your application by 23 Oct 12 pm should you decide to subscribe.

Happy Hunting,
KK

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