T-bill yield falls to 3.7%. Here’s why the yield is lower

What happened?

Some investors were disappointed by the result of the latest Singapore T-bill auction.

The cut-off yield for the 6-month Singapore T-bill (BS24101Z) was at 3.7%, falling from 3.74% in the previous 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. 

Join the Beansprout Telegram group and Facebook group for the latest insights on Singapore stocks, REITs, bonds and ETFs.