T-bill yield falls to 3.10%. Why the further decline?

What happened?

I noticed that there has been less discussion about the Singapore T-bill in the Beansprout community recently. 

In fact, it appears that most investors were not surprised by the further decline in the cut-off yield for the 6-month Singapore T-bill (BS24118Z) on 12 September to 3.10%.

This would represent the lowest 6-month Singapore T-bill yield since September 2022, and would be slightly lower than the yield of 3.13% in the previous auction.

However, I thought it might still be worthwhile finding out what is driving the decline in the Singapore T-bill yield.

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What we learnt from the latest 6-month Singapore T-bill auction

#1 - Demand for the Singapore T-bill fell sharply

The total amount of applications for the 6-month Singapore T-bill was S$13.4 billion, representing a decline from S$16 billion in the previous action.

This is likely due to the sharply lower yield of the T-bill in recent auctions. 

The amount of competitive bids decreased to S$11.7 billion, from S$13.9 billion in the previous auction.

If you had submitted a competitive bid at below 3.10%, you would receive 100% allocation of your T-bill bid amount.

If you had submitted a competitive bid at 3.10%, you may get about 61% of your T-bill bid amount.

The amount of non-competitive bids fell to S$1.7 billion from S$2.1 billion in the previous auction.

As the amount of non-competitive bids is within the allocation limit, eligible non-competitive bids get 100% allocation. 

#2 Average yield of T-bill bids was higher

The median yield of bids was 3.01%, similar to 3.00% in the previous auction.

The average yield of bids was 2.9%, higher than the 2.62% in the previous auction.

This is despite the sharp fall in government bond yields that we saw in recent weeks.

Based on the median yield and the cut-off yield, it would appear that there were a significant amount of bids that were submitted in the 3.01% to 3.10% range. 

#3 - Slightly larger issuance size compared to the previous auction

The amount of T-bills issued was S$6.9 billion, slightly larger than S$6.8 in the previous auction.

As the total applications for the T-bill decreased from S$16 billion to S$13.4 billion, the bid to offer ratio dropped from 2.35x to 1.95x.

What would Beansprout do? 

The fall in US and Singapore government bond yields in recent weeks has led to a further decline in the cut-off yield of the latest Singapore 6-month T-bill auction. 

This follows rising expectations that the US Federal Reserve would start cutting interest rates this month.

However, we have not seen a more significant decline in the cut-off yield, as demand for the T-bill has come down by a fair amount too. 

With the sharp fall in the T-bill yield, it would be below the best 6-month fixed deposit rate of 3.20% p.a.

With the fall in the T-bill yield, we would also start to look for other ways to earn a higher yield on our cash.

Some of the ways include:

• Tiger Brokers is offering a interest bonus coupon that allows you to earn 6.8% p.a. with Tiger Vault. Learn more about the Tiger Vault promotion here.
• Moomoo Singapore is offering a guaranteed return of 6.8% p.a.  when you deposit your funds into Moomoo Cash Plus. Learn more about the Moomoo Cash Plus promotion here.
• Syfe Cash+ Guaranteed offers a guaranteed return of 3.33% per annum for a term of 3 months as of 12 September 2024. Learn more about Syfe Cash+ Guaranteed here. 

Singapore REITs are also commonly seen as potential beneficiaries when interest rates decline. We share our thoughts on whether it is time to buy Singapore REITs here. 

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.

The next 6-month T-bill auction on 26 September 2024, and you can set a reminder by signing up for our free email alert. 

If you are new to investing in the T-bill, check out our comprehensive guide to Singapore T-bills to learn more.

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