T-bill yield falls to 3.87%. What's driving the decline?

What happened?

The cut-off yield on the latest 6-month Singapore T-bill auction (BS23120A) on 12 October 2023 fell to 3.87%.

This came as a disappointment to many investors, especially after the cut-off yield jumped above the 4% mark to reach 4.07% in the previous auction.

That said, the cut-off yield is still higher than what we have seen for most of August and September, when the cut-off yield hovered at the 3.70-3.80% range. 

Let us find out why is driving the fall in the cut-off yield in the latest 6-month Singapore T-bill auction.

What we learnt from the latest Singapore T-bill auction

#1 – Demand for T-bills surged

The total amount of applications for the latest Singapore T-bill was at S$14.7 billion, a staggering 58% or S$5.4 billion increase compared to the previous auction.

The increase in applications was seen across both competitive and non-competitive bids. 

The total amount of competitive bids rose from S$7.5 billion to S$11.9 billion.

The total amount of non-competitive bids increased from S$1.8 billion to S$2.8 billion. As the S$2.8 billion of applications is above the allocation limit of S$2.2, eligible non-competitive bids were only able to get a 79% allocation.

Overall, the S$14.7 billion of applications would represent the highest amount of T-bill applications since the start of this year. 

To put it into perspective, the next highest amount of applications in a 6-month T-bill auction this year was at S$13.0 billion in the auction on 2 March 2023, when the cut-off yield reached 3.98%.

#2 – Higher median yield but lower average yield for bids submitted

Despite the lower cut-off yield, it was interesting to note that the median yield of bids submitted for the 6-month T-bill was higher compared to the previous auction.

The median yield of bids submitted rose to 3.66% from 3.62% in the previous auction. 

However, the average yield of bids submitted fell to 3.37% from 3.51% in the previous auction.

Both the median and average yields in the latest auction were higher than the auction on 14 September, reflecting the rise in global bond yields during this period. 

#3 – Higher cut-off yield in previous auction likely led to more applications

The higher amount of applications is likely due to the increase in cut-off yield seen in the previous auction on 28 September, where it reached the highest level since early this year. 

Also, we shared that the loss of additional CPF interest in the previous auction on 28 September might have led to lower applications in the auction.

As a result, the amount of CPF applications might have normalized in the most recent auction on 12th October, further driving an increase in demand for the T-bill. 

What would Beansprout do?

The lower cut-off yield of 3.87% in the latest T-bill auction is likely driven by an increase in demand with the surge in yield in the previous auction, as well as a normalisation in CPF applications.

Despite the fall in cut-off yield, it has remained at a fairly elevated level compared to July and August this year. This would reflect the increase in global bond yields in recent months. 

As someone in the Beansprout community pointed out, the cut-off yield of 3.87% for the latest T-bill is still higher than the latest interest rates on fixed deposits.

This was despite an increase in the best 6-month fixed deposit rate to 3.6% recently. 

Investors have also refered to this 6-month fixed deposit rate of 3.6% in submitting their bids, with the median yield in the auction remaining close to this level. 

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 6-month T-bill, you can consider alternatives to park your savings before the next 6-month T-bill auction on 26 October 2023. There is also an upcoming 1-year T-bill auction on 19 October. 

Recently, more investors have been looking at cash management accounts to earn a potentially higher yield.  Otherwise, you can consider high-yield savings accounts that may allow you to earn a higher interest rate on your savings. 

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