T-bill yield falls sharply to 3.4%. Why the decline?

What happened?

The latest results for the 6-month Singapore T-bill auction are out.

The cut-off yield for the 6-month Singapore T-bill (BS24115A) on 1 August fell to 3.40% from 3.64% in the previous auction.

This would mark the lowest 6-month Singapore T-bill yield since September 2022, and represents a fairly sizeable decline from a yield of 3.70% in the auction on 4 July.

I saw that some investors in the Beansprout community were interested to find out why the yield is lower. 

In this post, I will be sharing more about why the cut-off yield for the Singapore T-bill fell.

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What we learnt from the latest 6-month Singapore T-bill auction

#1 - Demand for the Singapore T-bill surged 

The total amount of applications for the 6-month Singapore T-bill surged to S$18.0 billion from S$15.7 billion in the previous auction. 

This would mark a record high in T-bill applications, surpassing the previous peak of S$16.3 billion.

The amount of competitive bids rose to S$15.4 billion, from S$12.4 billion in the previous auction.

If you had submitted a competitive bid at below 3.4%, you would receive 100% allocation of your T-bill bid amount.

If you had submitted a competitive bid at 3.4%, you would receive approximately 43% of your T-bill bid amount.

However, the amount of non-competitive bids fell to S$2.6 billion from S$3.3 billion in the previous auction.

As the amount of non-competitive bids is within the allocation limit, eligible non-competitive bids get 100% allocation. 

#2 Median yield and average yield were lower

The median yield of bids was 3.30%, lower than 3.5% in the previous auction.

The average yield of bids was 2.85%, also lower than the 2.97% in the previous auction.

This would reflect the fall in US government bond yields in recent weeks, as investors gained confidence that the Fed will cut interest rates in September. 

With the decline in US bond yields, Singapore government bond yields have fallen in recent weeks too.

#3 Slightly larger issuance size compared to previous auction

The amount of T-bills issued was S$6.8 billion, the same amount as the previous auction.

As the demand for T-bills has risen by S$2.3 billion, the bid to offer ratio was 2.65x, higher than the previous auction’s 2.3x.

What would Beansprout do? 

The decline in the cut-off yield in the latest 6-month T-bill auction appears to be driven by an increase in demand for T-bills, as well as a lower yield for bids submitted.

The lower yield of bids submitted would reflect the decline in Singapore government bond yields, as investors gained confidence that the Fed may cut interest rates in September. 

This would also continue a trend where the cut-off yield on the T-bill has been declining in recent auctions.

With the decline in the T-bill yield, it would be exactly on par with the best 6-month fixed deposit rate of 3.4% p.a.

With the fall in the T-bill yield, we would also start to look for other ways to earn a higher yield on our cash.

Some of the ways include:

• Tiger Brokers is offering a interest bonus coupon that allows you to earn 6.8% p.a. with Tiger Vault. Learn more about the Tiger Vault promotion here.
• Moomoo Singapore is offering a guaranteed return of 6.8% p.a.  when you deposit your funds into Moomoo Cash Plus. Learn more about the Moomoo Cash Plus promotion here.
• Syfe Cash+ Guaranteed offers a guaranteed return of 3.6% per annum for a term of 3 months as of 1 August 2024. Learn more about Syfe Cash+ Guaranteed here. 

Singapore REITs are also commonly seen as potential beneficiaries when interest rates decline. We share our thoughts on whether it is time to buy Singapore REITs here. 

If you managed to subscribe to the 6-month T-bill using CPF OA funds, find out how much more interest you can potentially earn compared to the OA interest rate using our CPF T-bill calculator.

The next 6-month T-bill auction on 15 August 2024, and you can set a reminder by signing up for our free email alert. 

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If you are new to investing in the T-bill, check out our comprehensive guide to Singapore T-bills to learn more.

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