Latest T-bill allotment – What the surge in demand may mean for the next auction

What happened?

After the last Singapore treasury bill (T-bill) auction on 15 September when the cut-off yield reached 3.32%, the Beansprout community has been very excited about where the yield on the latest 6-month T-bill auction on 29 September would be. 

After all, interest rates have spiked following 15 September with the US Federal Reserve raising benchmark interest rates by 0.75 percentage point. 

In the latest auction on 29 September, the cut-off yield on the 6-month T-bill auction stayed at 3.32%, unchanged from the previous auction. 

What we noticed is that the total amount applied increased to S$9.7 billion in the latest auction from S$9.1 billion in the previous auction.

This greater value of applications resulted largely from the rise in non-competitive bids. 

There was S$1.2 billion worth of non-competitive bids allotted. As 100% non-competitive bids received allotments, this also meant that S$1.2 billion worth of non-competitive bids were received. 

The S$1.2 billion of non-competitive bids received is more than double that of the previous auction on 15 September, when only S$556 million of non-competitive bids were received. 

Comparing to July, the amount of non-competitive bids received has increased by close to 10x compared to the S$190 million of non-competitive bids received for the 21 July auction. 

Allotment for Singapore Savings Bonds shows that demand has shifted towards T-Bills

The increase in demand for T-bills is in contrast to the allotment of the latest Singapore Savings Bonds. 

The total amount applied for the October issuance of the Singapore Savings Bonds (SSB) was at S$1.1 billion. 

This represents a sharp decline from the S$1.9 billion of applications for the September issuance of the Singapore Savings Bonds (SSB). 

This could be due to the lower interest rates that we saw for the latest issuance of the Singapore Savings Bond. The 1-year interest rate fell to 2.6%, and the average 10-year interest rate fell to 2.75%. 

With the lower amount of applications for the latest Singapore Savings Bonds, the allotment for the SSBs rose significantly. 

The maximum amount of SSBs allotted to each individual was at S$42,500, much higher than the ceiling of S$13,500 we saw in the previous Singapore Savings Bonds issuance. 

What the surge in demand for T-bill may mean for the next auction

In recent auctions, 100% of non-competitive bids submitted for the T-bill were able to get their allotment.

However, it is worth noting that according to the auction guidelines, non-competitive bids will be allotted first up to 40% of the total issuance amount.

If the amount of non-competitive bids exceeds 40%, the bond will be allocated on a pro-rated basis. 

What this means is that if the total issue size of T-bill is S$4.0 billion, non-competitive bids will be allotted first up to S$1.6 billion of T-bill, based on 40% of total issuance amount. 

If the amount of non-competitive bids exceed S$1.6 billion, then you may not be able to get your full bid amount unlike previous auctions. 

What would Beansprout do?

The latest T-bill auction shows us that more Singapore investors are taking notice of the 6-month T-bill as an option to park their spare cash. 

This is likely because of the more attractive interest rates for the T-bills compared to other options in the market. 

However, it might be worth noting that the T-bill may not be liquid in the secondary market, which is why we would not put all our spare cash into the T-bill.

If you are looking to retain some flexibility, then the Singapore Savings Bond (SSB) and other deposit accounts might also be useful options to consider too. 

Also, while the interest rate reached 3.32% per annum in the latest auction, it does not mean that the yield for the next auction will remain as high. 

The next auction for the Singapore 6-month T-bill will happen on 13 October 2022. There will also be an auction for the 1-year T-bill on 13 October 2022. 

If you are wondering if you should apply for the T-bill using your CPF, do read our analysis here.

Find out more about how to apply for the Singapore Treasury-bill or SGS Bond here. 

Join our Telegram group if you have any questions about the Singapore Treasury-bill or SGS Bond! 

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