T-bill yield rises further to 1.48%. What's driving the bounce?

What happened?

The results of the latest Singapore T-bill auction are out.

In the auction on 18 December, the cut off yield for the 6-month Singapore T-bill (BS25125Z) increased to 1.48%.

This represents a consecutive increase after the cut off yield rose to 1.41% in the previous 6-month Singapore T-bill (BS25124F) auction on 4 December. 

In this article, I'll look at what is driving the increase in T-bill yield, as well as how it compares to the best fixed deposit rates as a place to park your cash to earn a higher 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 further

Total applications for the 6-month Singapore T-bill fell to S$14.9 billion in the latest auction on 18 December from S$16.3 billion on 4 December. 

The amount of competitive bids decreased to S$13.5 billion. 

If you placed a competitive bid below 1.48%, you would receive 100% of your requested T-bill allocation.

If you bid at exactly 1.48%, the allocation would be around 73%.

The amount of non-competitive bids rose to S$1.4 billion on 18 December from S$1.3 billion on 4 December.

Since the amount of non-competitive bids was within the allocation limit, all eligible non-competitive bids received full allocation for the T-bill. 

#2 - T-bills issued decreased slightly

The amount of T-bills issued was $7.9 billion, which was slightly lower than the previous auction on 4 December at S$8.0 billion.

With the lower amount of T-bill applications, the ratio of applications to T-bills issued (bid-to-cover ratio) decreased to 1.88x. 

#3 - Median and average yield of bids submitted rose

The median yield of bids submitted rose slightly to 1.37% from 1.36% in the previous auction. 

The average yield of bids submitted also increased to 1.27% from 1.22% in the previous auction. 

This would be inline with the bounce in government bond yields we have seen in recent weeks. 

Given the median yield and the cut-off yield, this suggests that a substantial number of bids were placed in the 1.37% to 1.48% range, which is higher than the best 6-month fixed deposit rate in Singapore. 

What would Beansprout do?  

The significant bounce in the T-bill yield is likely driven by the demand for the Singapore T-bill.

At the same time, the median yield of bids submitted has also increased with the rise in global bond yields in the past week.

With this rebound in the cut-off yield on the T-bill, it is now above the best 6-month fixed deposit rate in Singapore.

Despite the bounce, we would continue to look for other ways to earn a higher yield on our cash.

One other option to consider the Singapore Savings Bonds (SSB), which offers a 1-year return of 1.33% and average annual return of 1.99% over 10 years, while having the flexibility to redeem prior to maturity. 

We were also still able to find savings accounts in Singapore that offer an interest rate of above 1.48% p.a. 

To find out other ways to make your savings work hard, check out our guide to best ways to earn a passive income in Singapore.

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