1 Year T-bill yield falls to 3.38%. Here’s what is driving the decline

What happened?

The results of the latest T-bill auction were announced today.

The cut-off yield for the latest 1-year Singapore T-bill (BY24102W) fell to 3.38%, sharply lower compared to the yield of 3.58% in the previous auction.

This led to many questions in the Beansprout community about what is driving the decline in the T-bill yield. 

In fact, the cut-off yield of 3.38% would be the lowest level over the past two years. 

The last time the yield was lower was in the auction in July 2022, when the cut-off yield was at 3.10%.

Clearly, the yield has fallen sharply from a high of 3.87% in January 2023.

Let us find out what may be driving the decline in the T-bill yield.

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

#1 – Surge in demand for latest T-bill

Firstly, there was a sharp increase in demand for the 1-year T-bill.

The total amount of applications for the latest Singapore 1-year T-bill was S$15.0 billion, rising from S$10.1 billion in the T-bill auction in April.

The amount of competitive bids rose to S$13.5 billion from S$8.9 billion in the previous auction.

The amount of non-competitive bids rose to S$1.5 billion from S$1.2 billion in the previous auction.

As the S$1.5 billion of non-competitive bids is within the allocation limit, eligible non-competitive bids were able to get 100% allocation at the cut-off yield of 3.38%.

The surge in demand for the 1-year T-bill mirrors that of the 6-month T-bill, where demand has remained elevated in the most recent T-bill auction.

#2 – Lower average yield for bids submitted

The average yield of bids submitted fell to 2.84% from 3.28% in the previous auction.

The median yield of bids submitted also fell to 3.16% from 3.40% in the previous auction.

The fall in average and median yield of bids submitted in the latest T-bill auction would reflect the recent fall in government bond yields, as investors gained confidence that the Fed may start cutting interest rates in September. 

#3 – Narrowing in gap between T-bill yield and fixed deposit rates

Despite the fall in cut-off yield for the latest 1-year Singapore government bond auction, it remains above the best 12-month fixed deposit rate in Singapore of 3.25% p.a.

As the 12-month fixed deposit rate has held steady while the T-bill yield has declined in recent months, the gap between the T-bill yield and fixed deposit rates has narrowed significantly. 

What would Beansprout do? 

The fall in cut-off yield for the latest 1-year Singapore T-bill appears to be driven by a surge in demand as well as lower yield of bids submitted. 

The lower yield of bids submitted would reflect the fall in government bond yields in in recent weeks, with a higher likelihood of an interest rate cut by the Fed in the coming months. 

Despite the fall in the T-bill yield, it remains higher than the best 1-year fixed deposit rate in Singapore for now. 

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.

With the fall in the T-bill yield, we would also start to look for other ways to earn a higher yield on our cash.

Some of the ways include:

• Tiger Brokers is offering a interest bonus coupon that allows you to earn 6.8% p.a. with Tiger Vault. Learn more about the Tiger Vault promotion here.
• Syfe Cash+ Guaranteed offers a guaranteed return of 3.45% per annum for a term of 12 months as of 25 July 2024. Learn more about Syfe Cash+ Guaranteed here. 

For investors who are considering locking in interest rates over a longer period, we can also consider the Singapore Savings Bonds, which offer a 10-year average return of 3.22%. 

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 August. 

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