1-year T-bill yield falls to 3.58%. What we learnt from the latest auction

What happened?

There was disappointment amongst some investors when the auction results for the latest 1-year T-bill auction (BY22101W) was announced. 

The cut-off yield was at 3.58% p.a., below the market expectation for the yield to be at close to 3.7%.

Let’s take a closer look to understand what led to the decline in the yield on the 1-year Singapore government bond. 

What we learnt from the 1-year T-bill auction

#1 – Increase in amount of applications compared to previous auction

The total amount of applications for the 1-year T-bill was at S$12.7 billion. 

This is higher than the amount of applications in the previous 1-year T-bill auction in January, when there was only S$10.5 billion of applications. 

It would also be higher than the amount of applications in the latest 6-month T-bill auction on 13 April, which saw S$12.3 billion of applications. 

Interestingly, the amount of non-competitive bids stayed at about S$600 million, similar to the previous auction in January.

Hence, most of the increase in applications were from competitive bids. 

One of the possible reasons for the increase in applications is the ability of DBS and OCBC customers to now apply for T-bills using CPF savings online. 

DBS started allowing their customers to do so from January, while OCBC began offering this service in March. 

Hence, this would be the first auction that investors were able to apply for the 1-year T-bill using their CPF funds in a more convenient way. 

#2 – Cut-off yield significantly below closing level on 19 April

We shared earlier that the closing yield on the 1-year T-bill has been at about 3.7% over the past week.

In fact, it has been relatively stable despite the volatility in US bond yields, closing at 3.71% on 19 April. 

Clearly, the cut-off yield for the latest T-bill auction is below the closing yield on 19 April.

As it is unlikely that bond yields have changed so drastically within a day, it would seem like there were significant bids that were made below the market yield.

Earlier, we shared that it was likely that there were more competitive bids made for the 1-year T-bill using CPF funds in the most recent auction. 

This could also have led to the lower average bids, given the breakeven yield of 2.71% for 1-year T-bill applications using CPF funds, assuming one additional month of CPF interest loss. 

What would Beansprout do? 

We have seen a trend of government bond yields coming down in recent months.

The increased ease of T-bill applications using CPF funds via DBS and OCBC internet banking appears to have led to more demand for the latest T-bills, bringing about an even lower cut-off yield in the latest 1-year government bond yield auction.

For investors who did not get allocated the 1-year T-bill in the latest auction, we can consider putting our money in fixed deposits instead. There are various banks offering 12-month fixed deposit interest rate of up to 4%, above the 1-year T-bill cut-off yield.

Otherwise, the next 6-month T-bill (BS23108A) auction on 26 April 2023 is now open for applications. 

If you are looking to apply for the upcoming 6-month T-bill using CPF funds, it might be worth noting that there might be a loss of two additional months of CPF interest in this upcoming auction as the T-bill has an issue date of 2 May 2023 and maturity date of 31 October 2023, 

Also do check out our Cash Optimiser tool to find out where to earn the highest interest on your spare cash. Join the Beansprout Telegram group to get the latest updates on T-bills and more tips to improve your personal finance!