Fed raises rates, but T-bill yield could still fall from 4.4%



By Beansprout • 17 Dec 2022 • 0 min read

The Fed raised its benchmark rate by another 0.50%. However, this may not translate into higher yield for the Singapore 6-month T-bill.

T-bill auction 21 Dec

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What happened?

Many Singaporeans became interested in the 6-month T-bill again after the yield recently shot up to 4.4%.

In addition, the US Federal Reserve raised its benchmark interest rate by 0.50% earlier this week. 

This has led many investors to think that the yield on the 6-month T-bill could go up further. 

We’ve received many questions on what to expect for the upcoming auction on 21 December, which is the final 6-month T-bill auction of 2022.

Let’s take a look at some indicators to see whether it’s likely that the yield will rise further from 4.4%  

Issue Details
Source: MAS

Will the yield on the 6-month T-bill rise above 4.4%?

#1 - US bond yields have fallen

Despite the US Fed rate hike, the yield on the 1-year US government bond is now at 4.61%. This is slightly lower than its yield on 9 December, when the yield was at 4.67%. 

The increase in the Fed’s benchmark interest rate has not translated to higher 1-year government bond yield.

This might be because the 0.50% increase in the benchmark rate has already been expected by investors. 

Chart, line chart

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Source: Tradingview

#2 – Singapore government bond yields have fallen too

Like in the US, Singapore government bond yields have fallen in the past 2 weeks too. 

The yield on the BS22124H 6-month T-bill which had a cut-off yield of 4.4% has fallen to 4.21% as of 16 Dec 2022. 

That represents a decline of close to 0.19%.


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Source: MAS


The cut-off yield on the MAS 12-week bill has also fallen to 4.38% in the auction on 13 December from 4.65% in the auction on 6 December and 4.50% in auction on 29 November. 


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Source: MAS

#3 – How would individual investor interest affect the T-bill yield?

Diagram, timeline

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Earlier, we explained how the T-bill auction is conducted and how the cut-off yield is determined by the competitive bids submitted.

As a recap, there are a few factors that could affect the cut-off yield, including:

  • The amount of bids that are made
  • The yields that investors are putting in their competitive bids

At the last auction on 8 December the total amount of bids for the T-bill fell to $9.3 billion from $11.9 billion in auction on 24 November. 

However, investors who applied for the T-bill demanded a higher yield. The average yield for competitive bids rose to 3.73% from 3.26% in the previous auction. 

It is hard to predict the amount of competitive bids that will be put in this time. 

On one hand, more investors might be attracted by the eye-grabbing 4.4% cut-off yield in the previous auction.

On the other hand, interest could be seasonally lower in December as more Singaporeans might be away for their year-end holidays. 

Chart, histogram

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What would Beansprout do?

From the charts above, it would seem that short-term yields have fallen from where they were in the previous auction on 8 December.  

However, the eventual cut-off yield for the upcoming T-bill auction will depend on competitive bids submitted

Some investors may choose to refer to fixed deposit rates to determine the yield that they bid for the T-bill. 

While many investors were hoping that fixed deposit rates will rise further after the last T-bill auction, the best fixed deposit rates have stayed pretty much the same over the past 2 weeks. 

For example, CIMB is still offering the best 6-month fixed deposit interest rate of 3.95% with a minimum deposit of $10,000. 

CIMB also offers the best 12-month fixed deposit interest rate is 4.15% with a minimum deposit of $10,000. 

Here’s one last thing to note for this last 6-month T-bill auction of the year.

The auction will be held on 21 December (Wed), which would mean that we would need to put in our cash applications by 20 December (Tue).

This is slightly different from the other auctions, which are typically held on Thursdays. 

If you’ve got your mind set on the T-bill,  find out how to apply with our ultimate guide to T-bills. 

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