The cut-off yield on the latest 6-month Singapore T-bill auction on 18 January fell to 3.7%.
Some investors were disappointed by the result of the latest Singapore T-bill auction.
This was despite the spike in T-bills issued in the latest auction.
Let us find out why the Singapore T-bill yield declined, and what it might mean for the upcoming 1-year T-bill auction.
What we learnt from the latest Singapore T-bill auction
#1 – Demand for Singapore T-bill jumps
Here’s what surprised us most in the recent auction – the total amount of T-bill applications jumped to S$13.6 billion.
This would represent the highest amount of applications since the auction on 12 October, when total applications reached S$14.7 billion.
The amount of non-competitive bids rose from S$2.4 billion in the previous auction to S$3.0 billion, the highest level in the past year.
As the amount of non-competitive bids exceeded the allocation limit of S$2.6 billion, eligible non-competitive bids were only able to get approximately 87% allocation.
The amount of competitive bids also rose to S$10.6 billion from S$10.4 billion in the previous auction.
#2 – Increase in applications exceeded increase in T-bill issued
Earlier, we shared that the amount of T-bills issued in the latest auction will increase to S$6.4 billion.
This represents an increase of S$300 million compared to issuance size of S$6.1 billion in the previous auction, and marks the highest amount of T-bills issued in the past year.
However, the increase in applications of S$800 million compared to the previous auction has clearly outstripped the increase in T-bills issued.
This is likely to be the key reason for the lower cut-off yield in the latest auction compared to the previous auction.
#3 – Higher average and median yield of bids submitted
Interestingly, the median and average yields of bids submitted did not show a similar drop like the cut-off yield.
The median yield of bids submitted rose to 3.60% from 3.55% in the previous auction, partly reflecting the slightly increase in bond yields over the past few days.
Likewise, the average yield of bids submitted rose to 3.11% from 3.06% in the previous auction.
What would Beansprout do?
Overall, it seems like the higher demand for T-bills led to a lower cut-off yield in the latest auction.
This more than outweighed the increase in issuance size and higher median yield of bids submitted.
Despite the decline, the cut-off yield on the 6-month Singapore T-bill remains slightly higher than the best 6-month fixed deposit rate of 3.65%.
As such, we continue to like the T-bill as 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, it might be worth noting that there will be a 1-year T-bill auction coming up on 25 January 2024.
We can consider alternatives to park our savings before the next auction. 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.
If you would like to secure the high yields over a longer time period, then it might be worth considering Singapore Savings Bonds (SSBs), where the current issuance offers a 10-year average return of 2.81% per year.
Use our CPF-Tbill calculator to find out how much more interest you can potentially earn by investing in the Singapore T-bill using your CPF OA savings.
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