Is the 1-year T-bill better than the 6-month T-bill and fixed deposits?

What happened?

The yield on the 6-month Singapore T-bill has fallen over the past few months. 

Although the cut-off yield on the most recent 6-month T-bill (BS24120V) rebounded to 3.06%, it is still below the high of 3.76% in June.

At the same time, fixed deposit rates in Singapore have declined in recent months too.

This led some investors in the Beansprout community to ask if it might then be more worthwhile applying for the 1-year T-bill.

There will be an upcoming 1-year Singapore T-bill auction (BY24103N) on 17 October 2024. 

In this post, I will be looking at some of the latest indicators to find out if it is worthwhile to apply for the 1-year Singapore T-bill.

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What is the likely yield on the 1-year Singapore T-bill?

We have seen a decline in Singapore government bonds in the past few months with the US Federal Reserve interest rate cut  

For example, the 10-year Singapore government bond yield fell to a low of about 2.4% in September, before recovering to 2.83% as of 11 October. 

The yield on the 1-year Singapore T-bill has also been falling over the past few months.

The closing yield on the 1-year Singapore T-bill was at 3.04% on 10 October, based on daily market prices published by the MAS. 

This is much lower than the cut-off yield of 3.38% in the previous auction in July 2024.

However, it is worth noting that the eventual cut-off yield in the auction may differ from the closing yield, as it will depend on the bids in the auction.

From past few rounds of the 6-month T-bill auctions, we can see that demand for the T-bill has risen.

Buying Singapore 1-year T-bill – better than 6-month T-bill?

Rather than apply for the 1-year T-bill, one option to consider is to invest in two separate tranches of 6-month T-bill.

Specifically, we can invest in the upcoming 6-month T-bill auction, and re-invest the funds when the T-bill matures in six months’ time. 

If we apply for the next 6-month T-bill on 24 October, the maturity of the T-bill will be on 29 April 2025.

We can then apply for the next 6-month T-bill auction upon maturity of the T-bill. 

Indeed, the closing yield of 3.04% on the 1-year Singapore T-bill would be comparable to the cut-off yield of 3.06% for the latest 6-month Singapore T-bill auction. 

However, this may not mean that the 6-month T-bill is better than the 1-year T-bill. 

To decide if it is better to buy the 1-year T-bill or the 6-month T-bill, the question I will ask is whether I should lock-in the yield for 12 months, or face potential re-investment risk if government bond yields were to fall sharply in 6-months’ time. 

According to the CME Fedwatch Tool as of 11 October 2024, investors are expecting three rate cuts of 0.25% each between now and February next year.

The first interest rate cut is largely expected in November, with two further rate cuts potentially in December this year and January next year.

If interest rates were to fall sharply in the coming months, we may get a lower yield on the T-bill when re-investing our funds in the 6-month T-bill in February next year. 

Hence, we will have to keep track of interest rate trends in the coming months if we were investing in the 6-month T-bill.

This is especially so given the volatility in US government bond yields we have seen in recent months. 

Buying Singapore 1-year T-bill using CPF – Is it worth it?

We shared earlier that due to the loss of CPF interest, it is generally more worthwhile to use your CPF funds to invest in the T-bill when the bond has a longer maturity.

For example, the breakeven cut-off yield for T-bill applications using CPF OA falls to about 2.7% for a 1-year T-bill from 2.9% for a 6-month T-bill, assuming the loss of one additional month of CPF interest.

For the upcoming 1-year T-bill auction on 17 October, the issue date will be 22 October 2024, and the maturity date will be on 21 October 2025. 

If we are not looking to re-invest our funds into the next T-bill, we will potentially lose 13 months of CPF interest by investing in the 1-year T-bill using our CPF savings.

However, we will need to transfer funds back to our CPF OA account immediately when the T-bill matures, given that the maturity is very close to the end of the month

To find out how much more interest you can potentially earn on your CPF savings by investing in the 1-year T-bill, check out our CPF-Tbill calculator. 

Buying 1-year T-bill using cash – better than fixed deposit?

Most Singapore banks have lowered their fixed deposit rates in October. Currently, the best 1-year fixed deposit rate in Singapore we found is at 3.20% p.a. 

This would be much higher than the latest closing yield of 3.04% on the 1-year T-bill. 

However, the maximum deposit to earn the interest rate of 3.20% p.a. would be $19,999.

What would Beansprout do?

The current closing yield of the 1-year Singapore T-bill of 3.04% is comparable to the cut-off yield of the most recent 6-month Singapore T-bill auction.

However, we may still consider the 1-year Singapore T-bill over the 6-month Singapore T-bill to lock in the interest rates and not worry about re-investment risk.

This is especially so with the Fed expected to continue cutting interest rates in the coming months.

The latest closing yield of 3.04% on the 1-year T-bill is also lower than the best 1 year fixed deposit rate in Singapore of 3.20% p.a.

As such, we would consider putting money into the 1 year fixed deposit to earn a higher return on our savings, especially if we are looking to lock in interest rates for a longer period of time compared to the 6-month T-bill. 

However, the maximum deposit to earn the interest rate of 3.20% p.a. would be $19,999.

For amounts above S$20,000 we can also look for other ways to earn a higher yield on our cash.

The auction will be held on Thursday, 17 October 2024. As cash applications for the T-bill close one business day before the auction date, we would need to put in our cash applications for the T-bill by 9pm on 16 October (Wednesday).

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Applications for the T-bill using CPF-OA will close 1-2 business days before the auction date, and the dates differ across the three local banks.

• Applications for T-bills online using CPF OA via DBS close at 9pm on 16 Oct (Wed). Read our step-by-step guide to applying via DBS.
• Application for T-bills online using CPF OA via OCBC close at 9pm on  16 Oct (Wed). Read our step-by-step guide to applying via OCBC
• Applications for T-bills online using CPF OA via UOB close at 9pm on 15 Oct (Tue) Read our step-by-step guide to applying via UOB.

If you decide to apply for the 6-month T-bill instead of the 1-year T-bill, the next 6-month T-bill auction will be held on 24 Oct.

To learn more about T-bills and find out how to apply, check out our Comprehensive Guide to T-bills.

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