We are now approaching the start of a new quarter. From an interest rate point of view, there has not been any significant changes, as the Federal Reserve on 20 March 2024 have voted to hold interest rates at a 23-year high for a fifth consecutive meeting, while signalling that it still expects to make three cuts this year. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023. The possibility is still there for long-term interest rates to see decreases over the next few months.
Website: US Federal Reserve holds key rate, pencils in 3 cuts this year
Nonetheless, investors should keep an eye out for any other events. With continued conflicts around the world and the recent disruption to shipping due to the collapse of Baltimore bridge, these may be avenues to set inflation on a significant uptrend. Investors should take note and adjust their required rate of return to suit their risk appetite.
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Singapore Savings Bond
Investors should plan to look at the longer-term yields. I am using the Singapore Savings Bond yield below for my benchmark.
The Singapore Savings Bond (“SSB”) rates are on an uptrend, with the April 2024 issue seeing a 10-year average return of 3.04%. As the SSB is backed by the Singapore Government and has a credit rating of AAA, for now this is one of the safest investments out there.
Website: SBAPR24 GX24040Z Bond Details
I have extracted the daily March 2024 rates from MAS e-service website and noted that the 10-year average yield is as below.
| March 2024 Date | 10-Year Yield |
|---|---|
| 1 | 3.11% |
| 4 | 3.07% |
| 5 | 3.06% |
| 6 | 3.04% |
| 7 | 3.02% |
| 8 | 2.99% |
| 11 | 2.97% |
| 12 | 3.00% |
| 13 | 3.02% |
| 14 | 3.05% |
| 15 | 3.10% |
| 18 | 3.10% |
| 19 | 3.11% |
| 20 | 3.09% |
| 21 | 3.07% |
| 22 | 3.08% |
| 25 | 3.07% |
| 26 | 3.10% |
| 27 | 3.11% |
| 28 | 3.11% |
| Average | 3.06% |
With that in mind, seems like the 10-year yield for the upcoming SSB May 2024 issue is looking to be around 3.06%. The interest rates are currently stabilised at these levels and therefore as a long-term holder, we should use the 3.00% as a risk free rate when making your purchase considerations.
Summary
With my market risk premium of 2.50% and the risk-free rate of approximately 3.00%, this would translate to my expected dividend yield for new purchases to increase in 2024Q2 from 5.50% to 6.50%.
Whilst getting above 6.50% may seem like a good deal. There may be significant underlying risks for these assets which justified their higher yield. Investors should also not just look at dividend yield but also at the strength of the company, such as their management team, when making the investment decision.
As the economy remains uncertain while anticipating interest rates to decrease by end of 2024, this may change within the next few months.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: Reasonable Dividend Yield 2024Q1
I appreciate your efforts in providing such valuable information. Your writing style is engaging, and I eagerly anticipate your future posts.
Glad you enjoyed it and thank you for reading as well.
Best Regards,
VIS