6-month T-bill yield falls to 3.88%: Did DBS i-Banking fuel spike in demand?

What happened?

Some investors were looking at the latest 6-month T-bill auction to find out if there would be a significant surge in demand after DBS allowed T-bill applications using CPF-OA via internet banking (i-banking).

The cut-off yield on the latest T-bill auction on 2 February 2023 fell further to 3.88% p.a. from 4.0% p.a.in the previous auction.

However, there was no significant change in total amount of applications for the latest 6-month T-bill compared to the previous auction. 

What we learnt from the latest T-bill auction

#1 – Demand appears unchanged from previous auction

The total amount of applications for the latest T-bill was at S$12.9 billion, which is quite similar to the applications in the previous auction. 

It would appear that the ability of DBS customers to now apply for T-bills using CPF-OA via i-banking has not led to a significant increase in the amount of applications. 

But let's not be mistaken, the demand for T-bills remains very high. There were only two other occasions in the past 6 months that the total amount of T-bill applications exceeded S$13 billion.

Hence, it would seem like many investors are still interested in the T-bill despite the recent fall in yields. 

#2 – Sharp fall in non-competitive bids

The other significant development in the recent T-bill auction, is that the total amount of non-competitive bids has come off sharply. 

There were only S$0.77 billion of non-competitive bids made in the latest auction, falling from S$1.4 billion in the previous one and a peak of S$3.6 billion in November. 

Quite clearly, more investors are now preferring competitive bids over non-competitive bids. 

This could be because there is more awareness that competitive bids allow individuals to invest in the bond only if the yield is above a certain level. 

This might be important after there were a significant amount of bids submitted at very low yields in the previous auction. 

As a result of the lower amount of non-competitive bids submitted, non-competitive bids successfully submitted were able to get full allocation to the T-bill. 

#3 – Median yield of T-bill bids falling

The cut-off yield has been declining in recent 6-month T-bill auctions, inline with the fall in government bond yields in recent weeks. 

Likewise, the median yield has also been coming down over the past few auctions. 

For those who are not familiar with the median yield, it is the middle of all the competitive bids that were allotted the T-bill.

Since there were about S$4.1 billion of competitive bids that were allocated the T-bill, this would mean that close to S$2 billion of competitive bids that were made between the median yield of 3.77% and the cut-off yield of 3.88%. 

That's quite close to some of the better fixed deposit interest rates available in the market.

For those who are analysing the T-bill auctions closely, it might also be worth noting that the average yield has rebounded  to 3.27% from 2.71% in the previous auction. 

This would mean that there were less bids submitted at very low yields compared to the last time. 

What would Beansprout do?

The yield on the 6-month T-bill has been coming down in recent auctions, just like what we have seen for the US and Singapore government bonds. 

Likewise, the interest rates on the Singapore Savings Bonds have also been declining. 

In fact, banks have also recently cut the interest rates on fixed deposit accounts. 

If you are looking to lock-in the high interest rates, we were still able to find a few fixed deposit accounts that offered an interest rate of close to 4.0% over 6 months, 8 months and 12 months. 

With government bond yields falling, it might also be worthwhile looking at Singapore REITs which offer a higher dividend yield compared to government bonds.