T-bill yield steady at 3.78%. Here’s why it has remained high

What happened?

Many investors in the Beansprout community seem to be pleased with the latest 6-month Singapore T-bill result.

The cut-off yield on the 6-month Singapore T-bill auction (BS24105X) was at 3.78%, steady from the yield of 3.80% in the previous auction.

This was despite the fall in fixed deposit rates and government bond yields in recent weeks.

Let us find out what is driving the resilience in the yield on the Singapore T-bill.

Here’s what we learnt from the latest Singapore T-bill auction

#1 – Demand for Singapore T-bills recovered

The total amount of applications for the 6-month Singapore T-bill  rose to S$14.4 billion from S$12.4 billion in the previous auction.

This would be the first increase in the demand for the 6-month Singapore T-bill after it fell for two consecutive auctions.

The total amount of applications would also be one of the highest on record.

The amount of competitive bids rose to S$11.8 billion from S$10.0 billion in the previous auction, where there might have been lower demand from CPF members.

The amount of non-competitive bids rose to S$2.6 billion from S$2.4 billion in the previous auction.

As the amount of non-competitive bids exceeded the allocation limit of S$2.5 billion, eligible non-competitive bids were only able to get approximately 96% allocation. 

#2 – Smaller size of issuance had limited impact on T-bill auction result

Earlier, we shared that the amount of T-bills issued in the latest auction will fall to S$6.3 billion. 

This represents a slight decrease of S$100 million compared to issuance size of S$6.4 billion in the previous auction.

However, the increase in applications of S$1.6 billion compared to the previous auction has clearly outstripped the fall in T-bills issued.

#3 – Higher yield for bids submitted

What was most interesting to us was that the median yield and average yield of bids submitted rose compared to the previous auction.

The median yield of bids was at 3.60%, compared to 3.50% in the previous auction.

The average yield of bids was at 3.30%, compared to 3.30% in the previous auction.

Hence, it would seem like investors have put in higher yields for their competitive bids, even as fixed deposit rates and US government bond yields have fallen in recent weeks.

What would Beansprout do?

It’s a pleasant surprise to see that the cut-off yield on the 6-month Singapore T-bill has remained high.

This is likely driven by the higher yield of bids submitted, even as demand for the T-bill has increased sharply. 

As the T-bill yield has remained steady while fixed deposit rates have been falling, there is now a significant gap in the interest rate offered by the two instruments.

For example, the best 6-month fixed deposit rate is currently at 3.35%, below the cut-off yield of 3.78% offered by the latest T-bill. 

Hence, we consider the T-bill to be 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, you can consider alternatives to park your savings before the next 6-month T-bill auction on 27 March 2024.

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

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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