How are interest rates for Savings Bonds determined?

Question

Accepted Answer

Savings Bonds offer you a return that increases the longer you hold them for. This “step up” feature of the SSB reflects the objective of the Savings Bond programme, which is to facilitate long-term savings and investment.

For the purpose of calculating the step-up coupon rates for Savings Bonds, the one, two, five and ten-year benchmark SGS yields are used as reference. These reference yields are based on the simple average of the respective daily SGS benchmark yields from the month before the public notice of issuance, as provided on the "Daily SGS Prices" webpage.

Coupon rates for each issuance of Savings Bonds are determined such that the average annual compounded return over an investor’s investment period (e.g. 5 years) is linked to the yield of an SGS of a corresponding tenor (e.g. 5 year SGS bond yield). There may be two exceptions to this:

The first exception may arise from time to time if the shape of the SGS yield curve does not allow the interest rates to step-up. An adjustment may be made to ensure that the interest payments do not step down in any year within the life of a particular Savings Bond. This adjustment does not affect the return on the Savings Bond if it is held for the full 10 years.
The second exception is due to very small rounding differences of up to +/-0.03% that may arise in the computation of average returns for Savings Bonds.

Topics: