Table of Contents
1. What Is It?
2. How It Works in Singapore
3. Key Considerations
4. Worked Example
5. Frequently Asked Questions
This article is for informational purposes only and does not constitute financial advice. Consult a licensed financial adviser before making investment decisions.
Most Singapore retail investors who buy bonds — whether Singapore Government Securities (SGS), Singapore Savings Bonds (SSB), or corporate bonds — focus on yield. But savvy fixed income investors also care deeply about duration, which tells you how much your bond’s price will move when interest rates change.
What Is It?
Duration is a measure of a bond’s interest rate sensitivity, expressed in years. There are two main types:
Macaulay Duration: The weighted average time it takes to receive all cash flows (coupons + principal) from a bond. A 10-year bond paying annual coupons has a Macaulay duration of less than 10 years because you receive coupons along the way, not just at maturity.
Modified Duration: The more practically useful metric. It estimates the percentage change in a bond’s price for a 1% (100 basis points) change in yield. Formula: Modified Duration = Macaulay Duration / (1 + yield/n), where n = coupon payments per year.
For most Singapore retail investors, “duration” effectively means modified duration — how sensitive is this bond to rate moves?
How It Works in Singapore
Let’s ground this in Singapore-specific instruments (as at Q1 2026):
6-month T-bill: Duration ≈ 0.5 years. A 1% rate rise causes roughly 0.5% price fall. Very low sensitivity — great for investors who don’t want rate risk.
2-year SGS bond: Duration ≈ 1.9 years. Modest rate sensitivity.
10-year SGS bond: Duration ≈ 8–9 years. A 1% rate rise drops price by ~8–9%. Significant!
Singapore Savings Bonds (SSB): Step-up coupon structure with redemption flexibility. Because you can redeem SSBs at par with one month’s notice, effective duration is essentially zero from a price-risk standpoint — this is a key advantage over fixed-term SGS bonds.
Corporate bonds (SGX listed): Duration varies by tenor and coupon. A 5-year corporate bond with 3% coupon has duration around 4.5–4.8 years.
Key Considerations
Rising rate environment: If you expect interest rates to rise (as Singapore investors experienced in 2022–2023 when the US Fed aggressively hiked), lower duration bonds are safer. Short-dated T-bills and SSBs outperformed long-dated SGS bonds precisely because of this.
Falling rate environment: Conversely, if rates fall (as expected by many analysts for 2025–2026 as the Fed pivots), longer-duration bonds gain more in price. A 10-year SGS bond would appreciate ~8–9% in price for every 1% rate cut — significant capital gain on top of coupon income.
Duration matching for liability: CPF members approaching retirement sometimes use duration matching — buying bonds with a maturity roughly matching when they need the money — to reduce reinvestment risk and price risk simultaneously.
Convexity: Duration is a linear approximation. For large rate moves, convexity matters — bonds have a slight upward curve in their price-yield relationship, meaning they gain more when rates fall than they lose when rates rise by the same amount. This is a secondary effect but relevant for large rate moves (>2%).
Worked Example
You hold $50,000 in a 10-year SGS bond with modified duration of 8.5 years, purchased at par (yield = coupon = 3.2%).
Scenario: Singapore 10-year rates rise by 0.5% (50 bps).
- Price impact ≈ -8.5 × 0.5% = -4.25%
- Market value drops from $50,000 to ~$47,875
- You still receive coupon income: $50,000 × 3.2% = $1,600/year
If you hold to maturity, the price decline is irrelevant — you get $50,000 back at maturity. But if you need liquidity before maturity, you’d crystallise that loss.
Contrast with SSBs: same $50,000, no price risk because you can redeem at par anytime. Lower yield (~3.0% for 10-year average), but zero duration risk.
The tradeoff is classic: duration = opportunity for higher yield AND higher price volatility. See also our guides on bond yield, SGS bonds, and Singapore Savings Bonds for the full fixed income picture.
Frequently Asked Questions
What is bond duration in simple terms?
Duration tells you how much a bond’s price changes when interest rates move. A duration of 5 means the price falls about 5% if rates rise 1%, and rises about 5% if rates fall 1%.
Which Singapore bonds have the lowest duration?
6-month T-bills have the lowest duration (~0.5 years). Singapore Savings Bonds (SSBs) effectively have zero price duration because they can be redeemed at par at any time.
Why does duration matter for Singapore investors?
In a rising rate environment (like 2022–2023), long-duration bonds lose value. Short-duration instruments like T-bills and SSBs preserve capital better. Understanding duration helps you match your bond holding to your investment horizon and rate outlook.
What is the difference between Macaulay and modified duration?
Macaulay duration is the weighted average time to receive cash flows (in years). Modified duration adjusts for yield and gives the direct price sensitivity estimate — it’s the more useful number for portfolio management.
How do I reduce duration risk in my Singapore bond portfolio?
Shift from long-dated SGS bonds to short-dated T-bills or SSBs. Alternatively, use a bond ladder — staggering maturities across multiple years — to reduce sensitivity to any single rate move.
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