1-year T-bill yield falls to 3.45%. Here’s what led to the sharp decline

What happened?

Many investors were disappointed with the result of the latest Singapore T-bill auction. 

The cut-off yield on the 1-year T-bill (BY24100T) fell sharply to 3.45% from 3.7% in the previous auction.

It also represents a sharp decline from the closing yield of 3.72% as of 24 January 2024. 

In fact, the cut-off yield of 3.45% for the 1-year Singapore T-bill would be the lowest over the past year.

Let us dive deeper to understand more about what is driving the lower yield on the 1-year T-bill.

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

#1 – Surge in demand for latest T-bill 

The total amount of applications for the latest Singapore 1-year T-bill was at S$14.4 billion, increasingly sharply from S$11.9 billion in the previous auction in October. 

The amount of competitive bids increased to S$12.6 billion from S$10.5 billion in the previous auction.

The amount of non-competitive bids increased to S$1.8 billion from S$1.4 billion in the previous auction.

As the S$1.8 billion of applications is just within the allocation limit, eligible non-competitive bids were able to get 100% allocation at the cut-off yield of 3.45%.

To provide some context on how much demand for the 1-year T-bill has risen, we can compare to recent auctions as well. 

Compared to the auction in July 2023 which saw S$9.3 billion of applications, total demand for the T-bill would have surged by more than 50%.

Earlier, we also saw a jump in the amount of applications for the 6-month T-bill in the auction on 18 January. 

In fact, the S$14.4 billion of applications for the 1-year T-bill would also exceed the S$13.6 billion of applications for the latest 6-month T-bill.

With only S$4.5 billion of 1-year T-bills issued, the surge in applications led to a decline in the cut-off yield in the latest auction. 

#2 – Lower median and average cut-off yield submitted

Apart from a surge in demand for the 1-year T-bill, the median and average yields of bids submitted also declined. 

The median yield of bids submitted fell to 3.4% from 3.55% in the previous auction.

The average yield of bids submitted fell to 3.13% from 3.32% in the previous auction. 

The fall in median and average yields in the latest auction would partly reflect the fall in government bond yields over the past few months, after the Fed indicated that there may be interest rate cuts in 2024. 

#3 – Fall in T-bill yield consistent with decline in fixed deposit rates 

The decline in cut-off yield for the 1-year T-bill would also be consistent with the fall in fixed deposit interest rates in January 2024.

For example, Bank of China has cut its 1-year fixed deposit rate to 3.2% from 3.3% at the start of the month.

RHB has also cut its 1-year fixed deposit rate to 3.15% from 3.25% at the start of the month. 

The lower fixed deposit rates might have led more investors to apply for the 1-year T-bill.  

What would Beansprout do? 

The sharp decline in cut-off yield in the latest auction to 3.45% appears to be largely driven by a surge in demand for the 1-year T-bill.

This is a trend we have also seen in the previous 6-month T-bill auction, where applications also went up significantly. 

Also, the average and median yields of bids submitted by applicants were lower than the previous auction, consistent with the fall in bond yields in recent months. 

With the decline in fixed deposit rates, the cut-off yield on the latest 1-year Singapore T-bill of 3.45% remains higher than the current best 12-month fixed deposit rate of 3.2%. 

For those who were successfully allocated the 1-year T-bill, check out our CPF T-bill calculator to find out how much more interest you would potentially earn with the latest 1-year T-bill.

If you did not get your planned allocation for the latest 1-year T-bill, there will be a 6-month T-bill auction on 1 Feb. 

If you are looking to park your spare cash in the meantime, you can learn more about how cash management accounts aim to provide higher potential returns compared to savings accounts, and greater flexibility compared to fixed deposits. 

Otherwise, you can consider high-yield savings accounts that may allow you to earn a higher interest rate on your savings. 

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