With the end of 2024Q3, we are coming towards the final quarter for 2024. This quarter had been an interesting one, with the Federal Reserve finally cutting interest rates by 50 basis points on 18 September 2024. This decreases the federal funds rate to a range from 4.75% to 5.00%, and there is also speculation that there may be a further interest rate cut before the end of 2024.
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Singapore Savings Bond
The Singapore Savings Bond (“SSB”) rates were higher than previous quarter, with the October 2024 issue seeing a 10-year average return of 2.77%. 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: SBOCT24 GX24100H Bond Details
I have extracted the daily September 2024 rates from MAS e-service website and noted that the 10-year average yield is as below.
| September 2024 Date | 10-Year Yield |
|---|---|
| 2 | 2.75% |
| 3 | 2.74% |
| 4 | 2.67% |
| 5 | 2.63% |
| 6 | 2.57% |
| 9 | 2.61% |
| 10 | 2.57% |
| 11 | 2.50% |
| 12 | 2.51% |
| 13 | 2.45% |
| 16 | 2.43% |
| 17 | 2.41% |
| 18 | 2.43% |
| 19 | 2.46% |
| 20 | 2.48% |
| 23 | 2.54% |
| 24 | 2.60% |
| 25 | 2.57% |
| 26 | 2.61% |
| 27 | 2.63% |
| 30 | 2.62% |
| Average | 2.56% |
With that in mind, seems like the 10-year yield for the upcoming November 2024 issue is looking to be around 2.56%. The interest rates are currently stabilized at these levels after the significant decrease and therefore as long-term holders, we should use the 2.50% 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 2.50%, this would translate to my expected dividend yield for new purchases to decrease in 2024Q4 to 5.00%.
Take note that if there are assets with yields that may be significantly above 5.00%, 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.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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