T-bill yield falls to 3.75% as demand soars. Still better than fixed deposits?

What happened?

I noticed that there was an active discussion about the Singapore T-bill in the Beansprout community today.

Many seemed to be quite pleased that the cut-off yield on the 6-month Singapore T-bill auction (BS24107N) has remained high at 3.75%.

While this is lower than the cut-off yield of 3.8% in the previous auction, it is consistent with the closing yields for the T-bill in the past few days.

Hence, it would seem that the T-bill yield has held up well despite the cut in fixed deposit rates and savings account interest rates in recent weeks.

Let us find out more about the result of the recent T-bill auction, and if the T-bill remains an attractive option. 

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Here’s what you need to know about the latest 6-month Singapore T-bill auction result

#1 – Demand for Singapore T-bill jumped

The total amount of applications for the 6-month Singapore T-bill rose to S$16.0 billion from S$15.6 billion in the previous auction.

This would also mark the highest amount of applications for the T-bill on record, after reaching an all-time high in the previous auction.

The amount of competitive bids rose to S$13.2 billion from S$13.0 billion in the previous auction. 

This would also represent a record high for competitive bids submitted. 

If you had submitted a competitive bid at 3.74% or below, you would receive 100% allocation of your T-bill bid amount.

If you had submitted a competitive bid at 3.75%, you would receive approximately 26% of your T-bill bid amount. 

#2 - Non-competitive bids get lower allocation

The amount of non-competitive bids also rose to S$2.8 billion from S$2.6 billion in the precious auction. 

This might be partly driven by a lower amount of CPF applications in the previous auction, due to the loss of two additional months of CPF interest.

With an increase in the issuance size to S$6.3 billion from S$6.1 billion in the previous auction, the allocation limit to non-competitive bids was increased to S$2.5 billion.

As the amount of non-competitive bids exceeded the allocation limit, eligible non-competitive bids were only able to get approximately 88% allocation. 

However, as T-bills are allocated in a minimum denomination of S$1,000, this means that you may end up with a S$8,000 allotment for a S$10,000 non-competitive bid.

#3 – Higher yield for bids submitted

The median yield and average yield of bids submitted continue to rise compared to the previous auctions.

The median yield of bids rose slightly to 3.65% from 3.60% in the previous auction.

The average yield of bids also increased slightly to 3.39% from 3.34% in the previous auction.

As we shared earlier, US and Singapore government bond yields have bounced in recent weeks due to concerns that inflation may remain sticky.

Hence, it would seem like investors have kept their competitive bids fairly high, even as fixed deposit rates have fallen in recent weeks.

What would Beansprout do?

It seems to me that a higher demand for T-bill has led to a decline in the cut-off yield on the 6-month Singapore T-bill in the latest auction.  

However, a higher average and median yield of bids submitted has kept the cut-off yield at a fairly elevated level. 

What is also interesting to me is that as the T-bill yield has remained high while fixed deposit rates have been falling, the gap in the interest rate offered by the two instruments has widened further.

For example, the best 6-month fixed deposit rate is currently at 3.25%, below the cut-off yield of 3.75% offered by the latest T-bill.

Hence, we would continue to consider the T-bill as a safe way to earn a higher return on our savings in the short term. 

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.

For those who did not get your intended allotment of the T-bill, the next 6-month T-bill auction on 25 April 2024. There will also be a 1-year T-bill auction coming up on 18 April 2024. 

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We can also consider alternatives to allow our savings to work harder in the meantime. 

For example, cash management accounts allow you to earn a potentially higher return on your cash in a relatively safe way.  

To learn more about the T-bill including how to apply, check out our comprehensive T-bill Guide.

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