Happy New Year! With the end of 2024Q4, we are moving on to the first quarter for 2025. On 19 December 2024, the Federal Reserve cuts interest rate by another 25 basis points, decreasing the federal funds rate to a range from 4.25% to 4.50%. This marks a total of 100 basis points cut in 2024. Forecasts however, mentioned that there may be fewer cuts in 2025, given that there may be sweeping economic changes under a Trump administration. Therefore, there is a possibility that interest rates may remain unchanged at these levels over the next few months.
Website: Fed lowers rates but sees fewer cuts next year due to stubbornly high inflation
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Singapore Savings Bond
The Singapore Savings Bond (“SSB”) rates have stabilised, with the January 2025 issue seeing a 10-year average return of 2.86%. 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: SBJAN25 GX25010E Bond Details
I have extracted the daily December 2024 rates from MAS e-service website and noted that the 10-year average yield is as below.
| December 2024 Date | 10-Year Yield |
|---|---|
| 2 | 2.73% |
| 3 | 2.70% |
| 4 | 2.71% |
| 5 | 2.71% |
| 6 | 2.71% |
| 9 | 2.68% |
| 10 | 2.70% |
| 11 | 2.71% |
| 12 | 2.73% |
| 13 | 2.75% |
| 16 | 2.79% |
| 17 | 2.81% |
| 18 | 2.82% |
| 19 | 2.90% |
| 20 | 2.96% |
| 23 | 2.96% |
| 24 | 2.99% |
| 26 | 3.00% |
| 27 | 2.96% |
| 30 | 2.92% |
| 31 | 2.86% |
| Average | 2.81% |
With that in mind, seems like the 10-year yield for the upcoming February 2025 issue is looking to be around 2.81%. The interest rates are currently stabilized at these levels and therefore as long-term holders, we should use the 2.75% 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 2.75%, this would translate to my expected dividend yield for new purchases to increase in 2025Q1 to 5.25%.
Take note that if there are assets with yields that may be significantly above 5.25%, 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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Website: Reasonable Dividend Yield 2024Q4 – 5.00%
