SSBs, fixed deposits, T-bills
As a small and open economy, Singapore’s monetary policy is based on exchange rates, unlike central banks that use interest rates. While Singapore cannot directly control its interest rates, they tend to closely follow US rates, albeit not always in perfect alignment.
So changes in US central bank rates affect yields of Singapore Government Securities, which in turn influence SSBs and T-bills, says Providend’s Mr Lim.
Additionally, fixed deposit rates may move in tandem with changes in SSB and T-bill rates. For instance, if T-bills and SSB rates rise, commercial banks may need to adjust their fixed deposit rates to attract or retain customer funds, he adds.
SingCapital’s Mr Chia says Reits can provide relatively higher yields but also come with higher risk due to market volatility. They are often suitable for investors with a moderate to long-term horizon and a tolerance for risk.
Mr Darren Chan, senior research analyst at Phillip Securities Research, gives some examples of S-Reits with dividend yields of 10 per cent or more.
His list includes Prime US Reit, Keppel Pacific Oak US Reit, Elite Commercial Reit, United Hampshire US Reit and Cromwell European Reit.
However, their attractive yields may indicate that these Reits are seen as riskier as their assets are overseas, in places such as the US or Europe, and not in Singapore.
SingCapital’s Mr Chia says: “As Reits come from different sectors, leverage level and geographical areas, investors need to do more research.”
Other Reits offer lower yields; Keppel Reit is at 6.4 per cent based on the August report on Reits from the Singapore Exchange, while Frasers Hospitality Trust is at 4.6 per cent. Among its properties is the InterContinental Singapore.
Mr Chia notes that SSBs are low-risk, government-backed investments with moderate yields that suit conservative investors or those seeking stability in their portfolios.
This means that their yields are likely to be lower than those of Reits. For example, the September SSB will give an average return of 3.06 per cent a year if held for 10 years.
Fixed deposits also offer fixed, predictable returns and are appropriate for risk-averse investors looking for capital preservation. The proportion allocated to fixed deposits may depend on the investor’s need for liquidity, says Mr Chia.
Fixed deposit promotions last week showed offers such as RHB’s 3.4 per cent for either a six- or 12-month tenure with a minimum placement of $20,000.
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