How should I buy treasury bills: using poems or direct to banks?

I am a regular at two main forums. One of them is Hardwarezone and the other is SgFunds. The interesting thing about forums is that there are many young people who are new to investments and they ask many "newbie" questions.

Newbie questions may be irritating to some but they are a veritable gold mine for me to write posts about personal finance because it allows me to know what people want to find out and hence by responding to their posts with answers, I also generate content for this blog!

It's a win-win situation!

Poems or Banks?
One of the questions that arise after new investors learn of treasury bills is how should they do their investing? Should they go through the bank or use Phillips securities Poems trading platform?

The main difference between buying from a bank and buying through poems is as follows:

1) Time
If you are working a day-job and hardly have time to go queue at a bank, it is better for you to invest in treasury bills using poems as you can do it online with a poems trading account. If you are a retiree or work flexible hours or afternoon shifts, you may want to consider applying for Singapore Treasury Bills or government securities direct through the banks as there are no commissions or charges by the banks as primary dealers. The bank is doing "national service" to process your application for Singapore treasury bills to the Monetary Authority of Singapore.

2) Cost
Poems levies a spread of around 15 basis points (0.15%) between the cut-off yield arising from the treasury bill auction and the yield that you get investing through Phillip securities. Hence, if you had applied for the treasury bill direct, you would have saved this 0.15%. If you are a small investor with a couple of thousand dollars, this does not make much of a difference. If you have a couple of million to invest, then you can probably afford to get someone to go down to the bank and apply for the treasury bill to save that 0.15%. :-)

3) Knowing the yield
When you buy treasury bills from poems, you know what is the cut-off yield (less 15 basis points). When you apply for the same tranche of treasury bills through the banks, you are basically going in "blind" as a small player, you want to get your allotment by accepting the cut-off yield after MAS matches the succesful bidders for the auction. Hence, if you think that treasury bill yields may go up or down and want to know what is the yield before locking up your funds for the next 3 months, you may want to consider investing in the treasury bills through poems after comparing the yield against what you can get from the best fixed deposits rates for the amount of funds that you have on hand.

Therefore, the answer to this question really depends if you have time, are concerned about the 15 basis points spread and you would like to know what the yield is before investing. How you invest depends on what is your objectives in approaching treasury bills.

Be well and prosper.

How To Buy Treasury Bills Issued by MAS Without Going to the Bank

Today's wired society with internet access 24x7 sees everyone working at the speed of thought, as bits and bytes are transmitted virtually simultaneously through computer networks and systems.

How can we leverage on the available technology for our personal investments?

Let me share how we can buy and sell 3 month Singapore Government treasury bills issued by MAS using Poems. For those who have not heard of poems, it is Phillips Securities Online Electronic Mart system. Those who buy and sell stocks and shares in SGX online will know what is poems. The beauty of poems is that it is one of the more progressive electronic trading plaforms catering to retail investors and they have added the feature of being able to apply for the 3 month treasury bills issued every week by MAS.

The steps are simple:

1. Apply for a poems trading account - you can download the form online and sending it them them along with the required documents and deposit. You can also do it at any of their investor centres.
   
2. Apply for a cash management account online using the Online Forms option under > Stocks > Account Management
3. Once Phillips Securities has approved your (1) and (2) you are ready to participate in the 3 month treasury bills issuance market

Do note that poems does charge a bid-ask spread between what is offered by MAS on the cut-off yield vs the actual yield you receive. This is effectively the commission that Phillips earns from allowing you to do this electronically. Personally, I think this is worth the effort since it saves us time and effort and time IS money.

Take note that you should have sufficient funds when you are buying the treasury bills. Once purchased, you may sell the treasury bill anytime before maturity to Phillips of course at a slight discount. As treasury bills work as a zero coupon basis, this means if you deposit buy $1,000 worth of treasury bills, you will be deducted upfront for say, $990 and when the treasury bill matures, you will receive $1,000. Hence, your yield (or interest) is computed by this formula:

• Yield = 365 x (100-Price) / number of days.

Example. A 91 day treasury bill is priced 99.30. Hence yield = 365x(100-99.30)/91= 2.808%

Transferring money to and from poems is also quite easy. Once you have set up the poems account and also the EPS (electronic payment for shares) with Poems, you may:

1. Transfer money to Poems using internet banking or ATM via EPS feature
2. Transfer money from Poems using Online Forms to pay via direct credit (POSB/DBS) or via quick cheque to any local bank in Singapore
   

For those of us who wish to have more alternative lower risk investment instruments, treasury bills are a good complement to fixed deposits and savings and let your fingers help you do the investing!

May you live long and prosper.