Are Falling T-bill Interest Rates Making Fixed Deposits More Attractive?

What happened? 

Following the last T-bill auction on 24 November, many investors in the Singapore T-bill appear to be quite disappointed. 

After all, the cut-off yield on the 6-month T-bill came down further to 3.9% p.a.

This led many to ask if we will continue to see the yields on the T-bills falling in the upcoming auction on 8 December, and if it might make sense to just put our money into fixed deposits instead. 

Let’s start by taking a look at a few datapoints to see if they can provide some indication on what the cut-off yield in the upcoming auction could be. 

Will the yield on the 6-month T-bill fall below 3.9%?

#1 – Short duration bond yields have stayed relatively unchanged 

Since the last auction on 24 November, there have not been many significant changes to short-term interest rates in the US.

We saw an initial fall in bond yields after the Jerome Powell signaled that the Fed might slow down on its rate hikes in the upcoming December meeting. 

However, bond yields have gone up again after strong economic data in the US made investors realise that interest rates may remain high for some time. 

The US government 1-year bond yield is currently at 4.78%, relatively unchanged from where it was on 24 November.

While you might have heard about bond yields coming down in recent weeks, they are mainly referencing longer duration bonds. 

For example, the yield on the 10-year US government bond has clearly fallen to about 3.6% from 3.8% on 28 November. 

#2 - 6-month T-bill yield remains at close to 3.9% p.a.

We can also look at the current yield of 6-month T-bills in the markets.

Based on data from the MAS, the yield on the 6-month T-bill BS22123S maturing on 30 May 2023 is 3.92% p.a.. 

This is also very similar to the cut-off yield of 3.90% p.a. at the auction on 24 November. 

#3 – Competitive bids remain a wild card 

We’ve seen how the stronger demand for T-bills by individual investors has impacted the cut-off yield on the T-bills. 

There were S$11.9 billion of bids for the T-bill in the previous auction on 24 November, far exceeding the total amount allotted of S$4.8 billion. 

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:

• How many individuals switch from making non-competitive bids to competitive bids
• What is the yield that these individuals would bid for the T-bills 

At the last auction on 24 November, the amount of competitive bids for the T-bill fell to S$9.4 billion from $10.6 billion in the previous auction. 

Based on our analysis, investors are not putting in very low bids compared to the previous auction. 

This can be seen from the fact that average yield and median yield for competitive bids were higher or similar to the previous auction.

However, there were probably more investors who submitted bids in the range of 3.5-3.9%, which would have brought down the cut-off yield to 3.9%.

What would Beansprout do?

From the charts above, it would seem that short-term yields have not changed significantly from the last auction. 

The eventual cut-off yield for the upcoming T-bill auction will also be dependent on competitive bids submitted, which is hard to predict. 

As a result, some in the Beansprout community have suggested that there isn't a need to put in too low a competitive bid for the 6-month T-bill.

After all, we can also consider fixed deposit accounts which are now offering more attractive interest rates. 

For cash applications, CIMB is offering a 3.95% interest rate for 6-month fixed deposit with a minimum deposit of S$10,000. 

Bank of China also recently raised its 6-month fixed deposit rate to 3.95% for mobile placements with a minimum deposit of S$5,000.

For those of you considering using your CPF funds, OCBC now allows you to earn 3.4% p.a. with a 12-month fixed deposit using your CPF OA funds.  

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

Lastly, do join our Telegram group where we’ve got many helpful souls sharing the latest and best fixed deposit rates with the Beansprout community.