What Are US Bond Yields and the CSOP USD Money Market Fund?
A bond is like a loan you give to the US government or a company. In return, they pay you interest, called the bond yield. The CSOP USD Money Market Fund is an investment that puts your money into short-term, low-risk US bonds or similar assets. It gives you a small but steady return, often in US dollars.
The USD rate is how much the US dollar is worth compared to other currencies, like the Singapore dollar (SGD). If 1 USD = 1.35 SGD, the USD is strong. If 1 USD = 1.20 SGD, it’s weaker. This rate affects bond yields and your investments.
How Does the USD Rate Affect Bond Yields?
When the USD Is Strong
A strong USD means it’s worth more compared to SGD or other currencies. People from all over the world want to buy US bonds because the US is seen as a safe place to park money. When lots of people want bonds, the US doesn’t need to offer high interest to attract buyers, so bond yields go down.
Example: Strong USD (1 USD = 1.40 SGD)
In 2023, the USD was strong due to high US interest rates and global demand for safe assets. Let’s say if we invest SGD 10,000 in the CSOP USD Money Market Fund. At 1 USD = 1.40 SGD, our SGD 10,000 becomes USD 7,143.
If US bond yields are low (say, 2% because the USD is strong), our USD 7,143 might earn USD 143 in interest per year.
When convert that interest back to SGD (USD 143 × 1.40), we get SGD 200.20. But if yields are low, our returns feel smaller in SGD.
When the USD Is Weak (Current Situation)
A weak USD means it’s worth less compared to SGD. Fewer people might want US bonds because their money doesn’t stretch as far. To attract buyers, the US offers higher bond yields, so you earn more interest.
Example: Weak USD (1 USD = 1.20 SGD)
Imagine in 2021, the USD weakened due to global economic recovery. We invest SGD 10,000 in the CSOP USD Money Market Fund. At 1 USD = 1.20 SGD, your SGD 10,000 becomes USD 8,333.
If bond yields are higher (say, 4% because the USD is weak), our USD 8,333 earns USD 333.33 in interest per year.
Converting back to SGD (USD 333.33 × 1.20), we get SGD 400. That’s more than the SGD 200.20 from the strong USD example!
As of today, the USD is relatively weak, with an exchange rate of 1 USD = 1.2994 SGD. Here’s what’s happening:
US Bond Yields: The 10-year US Treasury yield is around 4.48%, high due to US government borrowing and inflation concerns (e.g., potential tariffs raising prices).
CSOP USD Money Market Fund: The fund likely earns 3–4% annually on its safe, short-term investments. With a weaker USD, our SGD buys more USD, and high yields boost your returns.
Federal Reserve: Interest rates are at 4.25%–4.50%, with possible cuts later in 2025. If rates drop, bond yields might dip slightly, affecting the fund’s returns.
The USD rate and US bond yields work like a seesaw—when the USD weakens, yields often rise, and our SGD buys more USD. Right now, with 1 USD = 1.2994 SGD and high yields (4+%), I am putting my funds to CSOP USD Money Market Fund.
Disclaimer: This post is for informational purposes only and does not constitute financial advice. Please consult a qualified financial advisor before making any investment decisions.