1 Year T-bill yield plunges to 2.71%. Why the sharp fall?

What happened?

I've been eagerly awaiting the results of the latest 1-year Singapore T-bill auction, as there have been questions in the Beansprout community about whether it is better to apply for the 6-month or 1-year T-bill. 

Recently, we have seen the cut-off yield on the 6-month Singapore T-bill rebound, while global bond yields have also bounced. 

However, the cut-off yield for the 1-year Singapore T-bill (BY24103N) fell to 2.71% in the latest auction.

This would be sharply lower compared to the yield of 3.38% in the previous auction, and represents the lowest yield on the 1-year Singapore T-bill in the last two years. 

The last time the yield on the 1-year Singapore T-bill was below 3% was in the April 2022 auction, when it was at 2%. 

Let us find out what may be driving the decline in the T-bill yield.

Don't miss out on the next T-bill

Sign up to receive a free email reminder when the next Singapore T-bill auction is open.

Subscription preferences

• Reminder for Tbill

What we learnt from the latest 1-year Singapore T-bill auction

#1 – Fairly resilient demand for latest T-bill

Firstly, I noticed that demand for the 1-year T-bill remains fair resilient.

While total applications for the latest Singapore 1-year T-bill fell to S$14.7 billion from S$15.0 billion in the T-bill auction in July, it remains significantly higher than the auctions in January and April this year. 

The amount of non-competitive bids fell to S$0.8 billion from S$1.5 billion in the previous auction.

Since the S$0.8 billion in non-competitive bids fell within the allocation limit, eligible non-competitive bids received a full 100% allocation at a cut-off yield of 2.71%. 

However, the amount of competitive bids rose to S$13.9 billion from S$13.5 billion in the previous auction.

This would reflect a similar trend to the most recent 6-month T-bill auction, where demand for the 6-month T-bill increased despite the lower yields compared to the middle of this year. 

#2 – Lower average and median yield for bids submitted

The average yield of bids submitted fell to 2.47% from 2.84% in the previous auction.

The median yield of bids submitted also fell to 2.6% from 3.16% in the previous auction.

This would likely reflect the fall in global bond yields since the previous auction, following the Fed interest rate cut in September this year. 

#3 – Cut-off yield close to breakeven yield for CPF OA applications

What stood out to me in the latest auction result, is that the cut-off yield of 2.71% is close to the breakeven cut-off yield for T-bills applications using CPF OA.

As a recap, the cut-off yield for T-bill applications using CPF is higher than the current CPF OA rate of 2.5%, due to the potential loss of additional CPF interest when applying for T-bill using CPF savings. 

The latest 1-year T-bill yield of 2.71% is also below the best 1-year fixed deposit rate in Singapore of 3.20% p.a.

In fact, with the sharp fall in the 1-year T-bill yield, the gap between the best deposit rate and the T-bill yield has widened further in the latest auction. 

What would Beansprout do? 

The sharp fall in cut-off yield for the latest 1-year Singapore T-bill appears to be driven by the lower yield of bids submitted, following the Fed rate cut in September. 

With the fall in the T-bill yield, it is now lower than the best 1-year fixed deposit rate in Singapore of 3.20% p.a.

As our CPF-Tbill calculator would show, there is also little additional interest that can be earned for investing our CPF-OA funds in the T-bill.

As such, we would also start to look for other ways to earn a higher yield on our cash in a relatively safe way.

For my cash holdings, I would consider money market funds to earn a higher yield compared to the T-bill while also meeting my liquidity needs.  Moomoo Singapore is offering a guaranteed return of 6.8% p.a. for new users who deposit funds into Moomoo Cash Plus. Learn more about the Moomoo Cash Plus promotion here.

I also shared how bond funds allow us to gain exposure to a basket of bonds which may see price appreciation if interest rates come down. 

I would also consider selected high quality Singapore REITs which may offer a higher dividend yield compared to the T-bill yield too.  

The next 6-month T-bill auction on 24 October 2024, and you can set a reminder by signing up for our free email alert. 

Don't miss out on the next T-bill

Sign up to receive a free email reminder when the next Singapore T-bill auction is open.

Subscription preferences

• Reminder for Tbill

Join the Beansprout Telegram group for the latest insights on Singapore stocks, REITs, bonds and ETFs.