Following the recent announcement of changing SGX board lots from 1,000 to 100, MAS and SGX are now also looking to break down the sizes for bonds.
Currently, most bonds start from a minimum of $250k, putting them out of rich for most retail investors. Even if they have the money to buy 1 or 2 lots, it would take a large amount of money at least few million dollars for them to create a diversified bond portfolio. While there are retail bonds such as the CapitaMalls Asia bonds, there are only a few of them.
One of the main proposals is to allow existing bonds to be redenominated into smaller lot sizes for investors. Another would be to exempt existing bond issuers from prospectus requirements for subsequent issues. This will help significantly as one of the main problems with retail bonds is the higher costs of running a public issue.
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This is great news for many Singaporeans who do not have much avenues to invest in bonds. Bonds are a good complement in a stock portfolio to help balance the returns and risks.
Another useful aspect of bonds is to create income streams for retirees. Interest rates have been generally low, therefore bank and fixed deposit rates are too low to keep up with inflation. An all stock portfolio might be too volatile for retirees’ risk appetite. The bonds would be able to provide for a higher rate of return with minimal price volatility.
Such bonds will however be limited to only plain vanilla bonds with maturity of up to 10 years. Personally, bonds with call or put options are fine to have, maybe at a later time when the bond market is more mature. Another question is whether they would have a restriction based on bond ratings. It would be good to have a mix of both investment grade and junk bonds rather than restrict it all to investment grade bonds. However, more financial education will definitely be needed.