T-bill yield falls sharply to 3.54%. What’s driving the decline?

What happened?

Many investors were surprised by the result of the latest Singapore T-bill auction.

The cut-off yield for the 6-month Singapore T-bill (BS24102S) fell sharply to 3.54% from 3.70% in the previous auction.

This follows the decline in yield in the recent 1-year Singapore T-bill auction, which offered a cut-off yield of 3.45%.

This would also mark the lowest cut-off yield on the 6-month Singapore T-bill since October 2022.

Let us find out the reasons driving the decline in the yield on the 6-month Singapore T-bill. 

What we learnt from the latest Singapore T-bill auction

#1 – Further increase in demand for Singapore T-bill 

The total amount of applications for the 6-month Singapore T-bill rose to S$14.6 billion from S$13.6 billion in the previous auction.

This would represent the second highest amount of applications for the 6-month T-bill since 12 October, when applications reached S$14.7 billion. 

The amount of competitive bids rose to S$12.4 billion from S$10.6 billion in the previous auction.

In fact, this represents the highest amount of competitive bids for the 6-month T-bill over the past year. 

However, the amount of non-competitive bids fell to S$2.2 billion from S$3.0 billion from the previous auction. 

As the amount of non-competitive bids was within the allocation limit, eligible non-competitive bids were able to receive full allocation. 

The shift from non-competitive to competitive bids may be driven by the recent 1-year T-bill auction, where some investors may have realised the risk of ending up with a lower-than-expected yield with a non-competitive bid. 

With a competitive bid, we will only invest in the T-bill if the yield is above a certain level.

#2 – Low average yield of T-bill bids submitted

Apart from the surge in applications for the 6-month T-bill, there was also a decline in the average and median yield of bids submitted.

The median yield of bids submitted fell to 3.21% from 3.60% in the previous auction.

The average yield of bids submitted fell to 2.63% from 3.11% in the previous auction. 

Out of curiosity, we went to check how the yields of bids submitted compared to previous auctions. 

Interestingly, the median and average yields of bids submitted were also the lowest over the past year. 

Previously in the auction on 8 November 2023, the average yield reached 2.71%.   

#3 – Large amount of T-bills issued had limited impact on the yield

Earlier, we shared that the amount of T-bills issued in the latest auction remains elevated at S$6.3 billion. 

This represents a slight decline from the issuance size of S$6.4 billion in the previous auction, but remains significantly above the average amount of T-bills issued in the past year. 

However, the S$1 billion increase in applications and lower average yields of bids submitted might have impacted the cut-off yield more significantly in the latest auction. 

What would Beansprout do? 

It seems like a continued increase in demand for T-bills, as well as lower average yield of bids submitted, have led to a sharp fall in the cut-off yield in the latest auction. 

With the decline in yield in the latest auction, the 6-month T-bill now offers a comparable rate to the best fixed deposit rate. 

However, fixed deposit rates have been falling too, with the best 6-month fixed deposit rate now offering an interest of 3.55% p.a., compared to 3.65% p.a. in early January. 

With the fall in the T-bill yield, there are a few alternatives we can consider to park our spare cash.

For example, cash management accounts may allow us to earn a potentially higher return on our idle cash in a relatively safe way.

StashAway Simple Guaranteed offers a guaranteed rate of 3.8% p.a. for a tenor of 3-months, and a guaranteed rate of 3.6% p.a. for a tenor of 6 months.

Syfe Cash+ Guaranteed offers a guaranteed rate of 3.9% p.a. for a tenor of 3-months, and a guaranteed rate of 3.6% p.a. for a tenor of 6 months. 

Otherwise, we can consider high-yield savings accounts that may allow us to earn a higher interest rate on our savings. 

For example, we share how to earn an effective interest rate of up to 6.85% p.a. over about 4 months with the UOB Rising Dragons Savings Promotion. 

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.

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