T-bill yield rises to 3.89%. What is driving the increase?

What happened?

Many investors were happy to see that the cut-off yield for the latest 6-month T-bill auction (BS23112N) on 22 June rose to 3.89% p.a. 

This is slightly higher than the cut-off yield on the previous auction of 3.84% p.a., and would be highest yield since the auction on 2 March.

Let’s dive deeper to understand what is driving the increase in the cut-off yield of the 6-month T-bill.

What we learnt from the latest T-bill auction

The total amount of applications for the latest T-bill was at S$9.9 billion, declining from S$11.5 billion in the previous auction.

Non-competitive bids fell to S$1.8 billion from S$1.9 billion in the previous auction. As the amount of non-competitive bids was below the allocation limit, all non-competitive bids were able to get their full allocation. 

What is notable is that amount of competitive bids fell to S$8.1 billion from S9.6 billion in the previous auction. 

The amount of competitive bids in the latest auction is more than 30% lower than a recent high of S$12.3 billion of competitive bids in the auction on 2 March.

It would seem like overall investor demand for the T-bill has been falling compared to the previous months.

#2 – Sharp decline in competitive bids 

#2 – Average and median yields submitted fell

Despite the higher cut-off yield for the latest T-bill auction, both the average and median yields of bids submitted fell.

The median yield fell to 3.60% p.a. from 3.68% p.a. in the previous auction.

The average yield fell to 3.07% p.a. from 3.36% p.a. in the previous auction. 

This would mean that investors who applied were generally expecting a lower yield compared to the previous auction. 

With the lower average and median yields submitted, it would seem like the lower amount of T-bill applications might have led to the higher cut-off yield in the latest auction. 

What would Beansprout do?

The cut-off yield on the latest 6-month T-bill has gone up with a fall in investor demand.

With the most recent increase in the cut-off yield, the 6-month T-bill offers a higher interest rate compared to the best fixed deposit rate currently. 

This is especially so as UOB and OCBC have just cut their 6-month fixed deposit rate to 2.7% p.a.

If you missed out on the current T-bill auction, you can consider parking your savings in various cash management accounts or savings accounts while waiting for the next 6-month T-bill auction, which will be held on 6 July 2023. 

For those who are looking to lock in interest rates for a longer period of time, it might also be worth noting that there will be a 1-year T-bill auction coming up on 27 July 2023. 

Check out 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 Ordinary Account (OA) savings.

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