T-bill yield rises to 3.8%. Why the bounce?

What happened?

Many T-bill investors were happy to see the latest auction result.

The cut-off yield for the latest 6-month T-bill auction (BS23123Z) rose to 3.8% from 3.75% in the previous auction.

This might have come as a surprise to many, as global bond yields have been falling in recent weeks. 

Let us find out what is driving the bounce in the cut-off yield in the latest 6-month Singapore T-bill auction.

What we learnt from the latest Singapore T-bill auction

#1 – Demand falls slightly compared to previous issuance

The total amount of T-bill applications fell slightly compared to the previous auction. 

There were S$13.0 billion of applications for the latest 6-month T-bill, lower than the S$13.2 billion of applications in the previous auction.

The amount of competitive bids remains elevated at S$10.8 billion, unchanged from the previous auction.

However, the amount of non-competitive bids fell to S$2.2 billion from S$2.4 billion in the previous auction. 

Eligible non-competitive bids were able to get 100% allocation in the latest T-bill auction, as the amount of non-competitive bids was within the allocation limit.

#2 – Median yield falls but average yield rises

The median yield of bids submitted fell slightly to 3.63% from 3.65% in the previous auction, reflecting the fall in global bond yields. 

As we shared earlier, bond yields have fallen in recent weeks as investors gained confidence that the US Federal Reserve may not hike interest rates further.

In addition, inflation in the US has continued to moderate, driving expectations that the Fed may have more room to cut interest rates in 2024.

However, the average yield of T-bill bids submitted rose to 2.90% from 2.71% in the previous auction. 

Likewise, the cut off yield increased to 3.80% from 3.75% in the previous auction. 

#3 – Larger issuance size compared to previous issuance 

One of the reasons for the higher cut-off yield is the larger amount of T-bills issued in the latest auction.

The amount of T-bills issued rose from S$5.7 billion in the previous auction to S$6.0 billion, the highest level this year. 

As we have seen in previous auctions, a larger amount of T-bills issued can help to push up the cut-off yield in the auction. 

For example, the cut-off yield rose to 3.99% when the amount of T-bills issued rose to $5.4 billion in the auction on 6 July from S$5.0 billion in the previous auction. 

What would Beansprout do? 

Despite the fall in global bond yields, the cut-off yield on the 6-month Singapore T-bill has increased slightly to 3.8% in the latest auction.

From the analysis above, the increase in cut-off yield appears to be driven by the increase in T-bills issued, as well as the slightly lower demand compared to the previous auction.

In the latest auction, the cut-off yield on the 6-month Singapore T-bill remains higher than the best 6-month fixed deposit rate of 3.60%. 

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, you can consider alternatives to park your savings before the second last 6-month T-bill auction this year on 7 December.

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 3.4% per year. 

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