T-bill demand surge pushes yield down to 4.0% p.a. What we learnt from the record high number of bids in the latest auction.

What happened?

The Beansprout community was eagerly awaiting results of the 6-month T-bill auction this afternoon. 

The results would typically come out a few hours after the auction closes at noon. However, we did not see any updates on the MAS website even at close of business. 

Shortly after 7pm, there was finally an update by the MAS. 

The cut-off yield of the 6-month T-bill auction on 10 November was at 4.00% p.a., lower than the 4.19% yield in the auction on 27 October. 

Beansprout takes a look the reasons behind the lower yields this time even as global interest rates are rising.

What we learnt from the latest T-bill allotment results

#1 – Surge in demand for T-bills

It became clear soon enough why there was a delay in the T-bill auction results.

There were over 95,000 bids for the latest auction, which is a record high and far exceeding the bids received for the previous T-bill auction.

This total amount of applications reached S$14.2 billion, which was a S$3.3 billion increase from the last auction on 27 October. 

#2 – Non-competitive bids hit allotment limit

Some investors may be disappointed that they were only able to get a small allotment compared to previous auctions. 

An interesting development this auction is that only 49% of non-competitive applications were allotted.

This would mark the first time in recent auctions that non-competitive bids were not able to get full allotment. 

Based on our calculations, the total amount of non-competitive bids reached close to S$3.7 billion this auction, significantly higher than the S$1.8 billion of non-competitive bids in the previous auction. 

This also exceeded the maximum allotment amount of S$1.8 billion to non-competitive bids in this auction. 

In case you are not aware, If the amount of non-competitive bids exceeds 40% of the overall T-bill issuance size, the bond will be allocated on a pro-rated basis. 

Based on today’s T-bill auction issue size of S$4.5 billion, non-competitive bids will be allotted first up to S$1.8 billion of T-bill, based on 40% of total issuance amount. 

As we shared with our Telegram community, this is how the MAS allocates the T-bill and sets the cut-off yield. 

• MAS will allocate to non-competitive bids first but this is capped at 40% of the total issuance. Hence if the total non-competitive bids exceed 40% of the issuance size, then your allocation will not be 100%. 
• Thereafter, MAS will allocate to the lowest yielding competitive bids first, until the whole issuance size is taken. This will set the “cut-off yield” of the auction. 
• If you bid below the cut-off yield, you will be allocated.
• If you bid at the cut-off yield, you might be partly allocated.
• If you bid above the cut-off yield, you will not be allocated.
• Everyone who is successfully allotted will receive the cut-off yield

What would Beansprout do?

In our view, government bonds with short maturities like the 6-month T-bill are a good way to park your spare cash in an uncertain economic environment. 

If you missed out on the latest T-bill auction, the next auction for the Singapore 6-month T-bill will happen on 24 November 2022.

While the cut-off yield on the T-bill has fallen compared to the previous issuance, the interest rate is still higher than the CPF OA account.  If you’re wondering if it makes sense to still apply for T-bill using your CPF in the next auction, you can read our analysis on whether you should apply for the T-bill using your CPF here. 

With the exceedingly high demand for T-bills, it might be harder to get full allotment through non-competitive bids in the upcoming auctions. 

Bookmark this page as we’ll be sharing our strategies on how to get higher allotments of T-bills! 

In the meantime, do join our Telegram group if you have any questions about the Singapore Treasury-bill, SGS Bond, or SSB!