T-bill yield drops to 2.90% as demand soars to new high

What happened?

I was disappointed to see the result for the latest 6-month Singapore T-bill auction.

The cut off yield for the 6-month Singapore T-bill (BS25103S) auction on 13 February was at 2.90%.

This would represent a decline in the T-bill yield compared to the cut-off yield of 3.04% in the previous 6-month T-bill auction on 28 January. 

It would also be the lowest yield on the 6-month Singapore T-bill since August 2022. 

Naturally, there were many others in the Beansprout Telegram community who were dismayed with the lower yield. 

In this post, I will share what led to the decrease in the cut-off yield in the recent 6-month Singapore T-bill auction.

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

#1 - Demand for the Singapore T-bill reached a record high

The total applications for the 6-month Singapore T-bill to S$23.3 billion, an increase from S$15.3 billion in the previous auction.

This represents a record high amount of T-bill applications, surpassing the previous record high of of $18.4 billion of applications in the auction on 16 Jan.  

The amount of competitive bids increase to S$19.7 billion from S$13.0 billion in the previous auction. 

This far exceeds the record amount of competitive bids placed in the auction on 16 January of S$15.3 billion.

If you placed a competitive bid below 2.90%, you would receive 100% of your requested T-bill allocation.

If you bid at exactly 2.90%, the allocation would be around 29%. 

I saw some questions in the Beansprout community about what this means for investors who made a competitive bid at 2.9%. 

As T-bills are issued in S$1,000 denominations, this means that applicants who submitted a competitive bid at 2.9% for S$10,000 will get S$2,000 or S$3,000 of allocation. 

The amount of non-competitive bids rose to approximately S$3.6 billion from about S$2.3 billion in the previous auction.

Since the amount of non-competitive bids exceeded the allocation limit, eligible non-competitive bids received approximately 80% allocation. 

#2 - Issuance size slightly larger than the previous T-bill auction

The amount of T-bills issued increased slightly to S$7.3 billion from S$7.2 billion in the previous auction. This represents the largest amount of T-bills being issued.

With total applications increasing from S$15.3 billion to S$23.3 billion, the ratio of applications to T-bills issued increased sharply from 2.13x to 3.19x 

This would also exceed the ratio of applications to T-bills issued in the 16 January auction of 2.55x. 

The record amount of T-bill applications compared to the issuance size likely contributed to the lower T-bill cut-off yield. 

#3 - Median and average yield of T-bill bids fell 

The median yield of bids submitted fell to 2.78% from 2.97% in the previous auction.

The fall in median yield would reflect the decline ine global bond yields in the past week.

Similarly, the average yield of bids submitted fell to 2.52% from 2.69%.

This may mean that there were some bids that were made at fairly low levels, which pulled down the average yield of bids submitted. 

Given the median yield and the cut-off yield, this suggests that a substantial number of bids were placed in the 2.78% to 2.90% range, below the breakeven yield for CPF applications. 

What would Beansprout do? 

The fall in the T-bill yield appears to be driven by a surge in demand, as the cut-off yield on the previous 6-month T-bill auction is significantly above the best fixed deposit rate in Singapore. 

At the same time, the median yield of bids submitted has also declined with the decrease in global bond yields in recent weeks. 

Despite the decline in the T-bill yield, the cut-off yield of 2.90% in the latest auction would still be above the best fixed deposit rates in Singapore.

However, it would be below the break-even yield for CPF OA applications, based on calculations using our CPF T-bill calculator.

If you are interested in applying for the T-bill, the next 6-month T-bill auction will be on 27 Feb. 

You can set a reminder by signing up for our free email alert below.

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