With the end of 2024Q2, we are now approaching the start of a new quarter. From an interest rate point of view, feelings have been mixed given the conflicting economic data. The recent Federal Reserve decision on 12 June 2024 was to maintain interest rates with only 1 potential interest rate cut for 2024. This was a decrease from the multiple rate cuts that were expected in the earlier few months of 2024.
Website: Fed holds rates steady, indicates only one cut coming this year
The interest rates have been between 5.25% and 5.50% since 26 July 2023. While there is still a possibility for long-term interest rates to see decreases over the next few months, market watchers are now waiting for the Federal Reserve to show a pivot, which will indicate their commitment and direction they want to take.
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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 were higher than previous quarter, with the July 2024 issue seeing a 10-year average return of 3.30%. 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: SBJUL24 GX24070S Bond Details
I have extracted the daily June 2024 rates from MAS e-service website and noted that the 10-year average yield is as below.
| June 2024 Date | 10-Year Yield |
|---|---|
| 3 | 3.32% |
| 4 | 3.27% |
| 5 | 3.26% |
| 6 | 3.22% |
| 7 | 3.21% |
| 10 | 3.29% |
| 11 | 3.29% |
| 12 | 3.27% |
| 13 | 3.23% |
| 14 | 3.17% |
| 18 | 3.19% |
| 19 | 3.15% |
| 20 | 3.17% |
| 21 | 3.16% |
| 24 | 3.16% |
| 25 | 3.15% |
| 26 | 3.21% |
| 27 | 3.26% |
| 28 | 3.21% |
| Average | 3.22% |
With that in mind, seems like the 10-year yield for the upcoming August 2024 issue is looking to be around 3.22%. The interest rates are currently stabilized at these levels and therefore as long-term holders, we should use the 3.25% 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 3.25%, this would translate to my expected dividend yield for new purchases to increase in 2024Q3 to 5.75%.
Take note that if there are assets with yields that may be significantly above 5.75%, it may also be accompanied with higher underlying risks. 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 2024Q2
