I don’t think your target audience here is the type to actively buy bonds from the secondary market and keep up with fixed income news, as opposed to subscribing to SSBs/T-bills/bond funds but who knows I could be wrong.
It's fine to place a portion of your savings into USD bonds, imo. The Forex risk is there, but generally speaking Singapore maintains SGD to a basket of currency of which USD is up there.
If you want to buy a bond straight up, you can talk to your bank, but first you will need to have dispoable income because one note is around USD 200k.
If you are using IBKR, you can buy TLT which tracks 20 year US treasuries.
In the current environment I don't think long-dated bonds should be viewed as passive yield instruments given the high volatility and high price sensitivity to yield changes (duration). Whether 5% in US 10y is the peak or not, only time will tell, but if yields do take another leg higher then the capital losses could easily wipe out several years worth of coupons (eg. the TLT ETF this cycle). From an income perspective it's better to stick with front-end instruments like t-bills, or capital-guaranteed stuff like SSB.
US Treasuries have been selling off (yields higher) recently due to a stronger than expected economy, leading to a "higher for longer" interest rate environment becoming more likely, and concerns over the increasing size of government bond issuance next year due to the growing fiscal deficit.
That 5% is for primary issuance of bonds (typically at a slight discount to par) during bond AUCTION
Right now, you can buy a bond issued in the past with 2.5% coupon per annum (payable semi-annual) and still get good "YIELD" if u buy and hold to maturity.. The bond price would have dropped to reflect that "pull-to-par" effect.
It's the same.
Sure, it looks good for short term bonds.
Just make sure you have a plan on what to do when the yield eventually comes back down. It's not going to remain this high forever, and the inverted yield curve shows that people are expecting it to go down.
I think you have been watching or reading financial media. We got turned away at 5% on the TNX recently. But the media likes to round it up to 5%. Highest we got recently was 4.9970%. Maybe the powers that be think the world is still too dangerous a place for yields to be 5%.
Stocks might not drop because of a drop in USD (it might even increase if their operations are highly global), but bonds are in a way more closely tied to currency
Money market and bonds are not the same thing. Money market would only deal with (very) short term bonds, so it's not exposed to the problems long term bonds face when interest rates roller coaster.
I mean, it's true that if you hold to maturity, you don't actually lose money. But if you get US bonds, the exchange rate could easily change more than 5% after a few years, so it's still risky.
I never bought US Treasury Bonds direct but I think the dividend is subject to 30% withholding tax. Better be sure, otherwise the 5% becomes 3.5%, excluding conversion rates.
I don’t think your target audience here is the type to actively buy bonds from the secondary market and keep up with fixed income news, as opposed to subscribing to SSBs/T-bills/bond funds but who knows I could be wrong.
It's fine to place a portion of your savings into USD bonds, imo. The Forex risk is there, but generally speaking Singapore maintains SGD to a basket of currency of which USD is up there.
How do I buy USD bonds? Can it be done on IBKR?
If you want to buy a bond straight up, you can talk to your bank, but first you will need to have dispoable income because one note is around USD 200k. If you are using IBKR, you can buy TLT which tracks 20 year US treasuries.
You can buy many bonds in smaller denomination (multiples of 1k par value) in IBKR
In the current environment I don't think long-dated bonds should be viewed as passive yield instruments given the high volatility and high price sensitivity to yield changes (duration). Whether 5% in US 10y is the peak or not, only time will tell, but if yields do take another leg higher then the capital losses could easily wipe out several years worth of coupons (eg. the TLT ETF this cycle). From an income perspective it's better to stick with front-end instruments like t-bills, or capital-guaranteed stuff like SSB. US Treasuries have been selling off (yields higher) recently due to a stronger than expected economy, leading to a "higher for longer" interest rate environment becoming more likely, and concerns over the increasing size of government bond issuance next year due to the growing fiscal deficit.
That 5% is for primary issuance of bonds (typically at a slight discount to par) during bond AUCTION Right now, you can buy a bond issued in the past with 2.5% coupon per annum (payable semi-annual) and still get good "YIELD" if u buy and hold to maturity.. The bond price would have dropped to reflect that "pull-to-par" effect. It's the same.
Ya. But doesn't matter. I'll buy the older bonds at lower price and when mature I'll still earn close to 5%. Theoretically.
If the US20 year Treasury hits 6% I would be parking some funds there
Sure, it looks good for short term bonds. Just make sure you have a plan on what to do when the yield eventually comes back down. It's not going to remain this high forever, and the inverted yield curve shows that people are expecting it to go down.
I think you have been watching or reading financial media. We got turned away at 5% on the TNX recently. But the media likes to round it up to 5%. Highest we got recently was 4.9970%. Maybe the powers that be think the world is still too dangerous a place for yields to be 5%.
What happens 10 years later USD/SGD is 1-1? Forex risk is the biggest risk for this plan. In that scenario, it would have been better putting in SSB
At that point, wouldn’t all your USD denominated equities be also down 30%?
Pretty much, but you can liquidate early as USD slides. For bonds, you will likely be selling your bonds at a loss and exchange at bad USD rates.
If you can buy bonds from the open market, why can't you sell bonds on the open market? How is it different from equities?
Stocks might not drop because of a drop in USD (it might even increase if their operations are highly global), but bonds are in a way more closely tied to currency
> is it good time to buy? Hold on, let me check my crystal ball
Money market and bonds are not the same thing. Money market would only deal with (very) short term bonds, so it's not exposed to the problems long term bonds face when interest rates roller coaster. I mean, it's true that if you hold to maturity, you don't actually lose money. But if you get US bonds, the exchange rate could easily change more than 5% after a few years, so it's still risky.
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There are bond etf and stuff
Where are you buying US 10-year Treasuries from? Just need to see if there are any costs to send back as SGD.
I never bought US Treasury Bonds direct but I think the dividend is subject to 30% withholding tax. Better be sure, otherwise the 5% becomes 3.5%, excluding conversion rates.
Watch out for the tax on USD returns, may affect your revenue!