You will be able to group bond issuers by type and say what changes in risk and return between them.
Hui Min's bank app shows her three things in one week. A reminder that the next Singapore Savings Bond application window is open. An advert for a retail bond from a property developer paying a noticeably higher rate. And a news story about a statutory board raising money from investors. All three are bonds. All three are loans. The difference between them is who is borrowing, and that turns out to matter more than almost anything else on the term sheet.
The safest borrower a Singapore investor can lend to in Singapore dollars is the Singapore Government. Its debt comes in a family called Singapore Government Securities, or SGS. MAS issues them on behalf of the Government, runs the auctions and publishes the details on its website.
The family has three members you will meet in this course. SGS bonds run for years and pay a coupon every six months. T-bills run for a year or less and pay no coupon; you buy them below face value instead. Singapore Savings Bonds are a version built for individuals, with step-up interest and the option to get your money back in any month. Module 3 covers SSBs and module 4 covers T-bills and SGS bonds.
Because they share one borrower, they share one level of credit risk: the risk that the Singapore Government does not pay. What differs between them is how long you lend for, how you buy and how easily you can get out.
Next come borrowers that sit close to the Government but are not the Government. Statutory boards, such as the bodies that run housing or land transport, sometimes issue their own bonds. So do companies in which the state holds a stake, often called government-linked companies.
It is easy to treat these as the same as SGS. They are not. Each one is a separate borrower with its own finances and its own legal promise to pay. A link to the Government may make investors more comfortable, and that often shows up as a lower interest rate than a purely private company would pay. But unless the Government has explicitly guaranteed the bond, the promise to repay comes from the issuer alone. Read whose name is on the bond, not whose name is in the news.
The third group is everyone else: banks, property developers, REIT managers, transport and telecoms firms, and smaller companies. They borrow to fund buildings, ships, acquisitions or day-to-day operations.
They pay more than the Government for a simple reason. Their chance of not paying you back is higher. A company can lose customers, take on too much debt or be hit by a downturn in its industry, and the Government has powers no company has, including raising taxes. The extra yield a company pays above a similar government bond is the market's price for that difference. It is called the credit spread, and you will measure it yourself in module 6.
Within this group the range is wide. A large bank with decades of steady earnings is a very different borrower from a young company with one project. A higher coupon is not a bonus. It is a warning that the market thinks the promise is less certain.
Here is the part that surprises many people. A large share of corporate bonds in Singapore are not open to ordinary investors at all. Many are sold only to accredited or institutional investors, the categories MAS rules set out for people with higher income or wealth, and for professional funds. Others are open to anyone in principle but sold in lots too large for most people, which puts them out of reach for anyone wanting to put in a few thousand dollars.
What reaches retail investors directly is a narrower list. There are SGS bonds, T-bills and SSBs, all of which can be bought in small amounts. And there are some retail bonds and perpetual securities issued by companies, sold with a prospectus or product highlights sheet and often listed on SGX. If you want exposure to many company bonds at once, the usual route is a bond fund or bond ETF, which module 7 compares with holding bonds directly.
Put this together and you get a rough ladder of credit risk, from lowest to highest. At the bottom sits the Singapore Government, through SGS bonds, T-bills and SSBs. Above it come statutory boards and other borrowers close to the state. Then large, well-established banks and companies. At the top are smaller or more indebted companies, and products that rank below ordinary bonds if the issuer fails, such as perpetual securities.
This is a starting point, not a verdict. A specific large company can be shakier than its size suggests, and you will learn how to check in module 6. But the habit of asking who is borrowing before you look at the rate is the single most protective thing you can bring to a bond.
When Hui Min sorted her three adverts this way, the order was obvious, and so was the reason the developer's rate was higher. You are going to sort a list of your own next, and give each borrower a reason for its place.
List three borrowers whose bonds a Singapore retail investor could buy and rank them from lowest to highest credit risk, with one reason each.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).