T-bill yield falls to 2.99%. Here's why it has declined

What happened?

The latest results for the 6-month Singapore T-bill auction are out.

The cut off yield for the 6-month Singapore T-bill (BS24121A) auction on 24 October fell to 2.99% from 3.06% in the previous auction. 

The fall in the cut-off yield follows the decline in the 1-year T-bill yield to 2.71% recently, in spite of a bounce in US government bond yields in the past week. 

In this post, I will look at the most recent 6-month Singapore T-bill allotment result to understand what may be driving the lower yield. 

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What we learnt from the latest 6-month Singapore T-bill auction

#1 - Demand for the Singapore T-bill fell

The total applications for the 6-month Singapore T-bill fell to S$13.5 billion from S$14.9 billion in the previous auction.

The amount of competitive bids fell from S$13.5 billion in the previous auction to S$12.1 billion.

If you placed a competitive bid below 2.99%, you would receive 100% of your requested T-bill allocation.

For those who bid at exactly 2.99%, the allocation would be around 46%. 

Meanwhile, non-competitive bids remained unchanged from the previous auction at S$1.4 billion.

Since these bids were within the allocation limit, all eligible non-competitive bids received a full 100% allocation. 

#2 - Issuance size remains unchanged from previous T-bill auction

The amount of T-bills issued remained at S$6.8 billion, the same as the previous auction.

With total applications falling from S$14.9 billion to S$13.5 billion, the ratio of applications to T-bills issued decreased from 2.2x to 2.0x.

#3 Median and average yield of T-bill bids were higher

The median yield of bids came in at 2.93%, slightly up from 2.9% in the previous auction. 

The higher median yield is likely due to the recent increase in government bond yields, as US retail sales and economic data has been stronger than expected. 

Additionally, the average yield also increased slightly to 2.84% from 2.76%. 

Despite the rise in average and median yields, the cut-off yield fell to 2.99% in the latest auction. 

Given the median yield and the cut-off yield, this suggests that a substantial number of bids were placed  in the 2.93% to 2.99% range, close to the breakeven yield for the 6-month Singapore T-bill. 

What would Beansprout do? 

Despite the bounce in global bond yields and increase in median yield of bids submitted, the 6-month Singapore T-bill yield has fallen to below 3% once again.

This appears to be driven by significant bids in the 2.93% to 2.99% range, just slightly above the breakeven yield for CPF applications. 

The cut-off yield of 2.99% in the latest auction would be below the best 6-month fixed deposit rate in Singapore of 3.1%.

It would also be close to the break-even yield for CPF OA applications. 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.

As the Singapore T-bill yield has fallen below 3%, I would be looking for ways to allow my savings to earn a higher yield in a relatively safe way.

I also shared how bond funds allow us to gain exposure to a basket of bonds which may see price appreciation if interest rates come down. 

I would also consider selected high quality Singapore REITs which may offer a higher dividend yield compared to the T-bill yield too.  

The next 6-month T-bill auction on 7 November 2024, and you can set a reminder by signing up for our free email alert. 

If you are new to investing in the T-bill, check out our comprehensive guide to Singapore T-bills to learn more.

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