T-bill yield falls to 3.78%. More CPF applications driving higher demand?

What happened?

The cut-off yield for the latest 6-month T-bill auction (BS23109E) on 11 May 2023 declined from the previous auction to reach 3.78% p.a. 

This came about after the total amount of applications for the latest 6-month T-bill rose compared to the previous auction. 

Let’s take a look to understand what led is driving the higher demand for the 6-month T-bill.

What we learnt from the latest T-bill auction

#1 – Increase in applications for the 6-month T-bill

The total amount of applications for the latest T-bill was at S$12.0 billion, rising from S$11.1 billion in the previous auction.

The increase in demand was seen across both competitive and non-competitive bids, but was more significant for non-competitive bids.

The amount of competitive bids increased to S$10.7 billion from S$10.4 billion in the previous auction. 

The amount of non-competitive bids rose to S$1.3 billion from S$669 million in the previous auction.

This also marks the highest amount of non-competitive bids since 18 January this year, when the total amount of non-competitive bids was at S$1.4 billion. 

It would seem like the start of online applications using CPF funds for UOB customers has led to more non-competitive bids being submitted. 

We saw a similar trend during the auction on 13 April, when the start of online applications using CPF funds for OCBC customers led to an increase in non-competitive bids.

#2 – Average and median yields declined

The median yield and average yield of bids submitted both fell with the decline in cut-off yield in the latest auction.

The median yield fell to 3.60% p.a. from 3.70% in the previous auction. The average yield fell to 3.26% p.a. from 3.43% p.a. previously.

Like in previous auctions where there might be a higher proportion of applications using CPF funds, we saw a much lower average yield compared to the median yield and cut-off yield.

Comparing the median yield and cut-off yield, there were close to S$1.95 billion of applications that were submitted at between 3.60% and 3.78%. 

With an average yield of 3.26%, it would also mean that there were also a sizeable amount of applications that were made around 2.92%, which is the approximate breakeven yield for the 6-month T-bill using CPF funds (assuming one additional month of CPF interest loss)

What would Beansprout do?

There has been an increase in T-bill demand in the latest auction, which led to a lower cut-off yield compared to the previous auction.

One of the reasons for the higher amount of applications could be from UOB allowing its customers to apply for T-bills online using CPF funds. 

This has led to a few key changes we observed in this auction:

• More non-competive bids compared to previous auctions
• More competitive bids made at a significantly lower yield compared to the previous auction, bringing down the average yield

Despite the slight decline, the cut-off yield of 3.78% p.a. on the latest T-bill auction is still above the highest 6-month fixed deposit in the market currently. 

If you missed out on the current T-bill auction, you can consider parking your savings in various cash management accounts or savings accounts while waiting for the next 6-month T-bill auction, which will be held on 25 May 2023. 

For investors looking for a higher yield compared to the T-bill, we can consider looking at a REIT ETF too.

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