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T-bill yield rebounds to 3.85%. What's driving the increase?

25 May 2023

The Singapore 6-month T-bill’s cut-off yield reached 3.85% in the latest auction, above the yield of 3.78% in the previous auction.

What happened?

Many investors were happy to learn that the cut-off yield for the latest 6-month T-bill auction on 25 May 2023 rose to 3.85% p.a.

The increase in the T-bill yield is in contrast to the fall in fixed deposit rates we have seen recently. 

Let’s take a look to understand what is driving the higher cut-off yield for the 6-month T-bill.

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Source: MAS

 

What we learnt from the latest T-bill auction

#1 – Increase in applications for the 6-month T-bill

The total amount of applications for the latest T-bill was at S$12.2 billion, rising from S$12.0 billion in the previous auction.

The increase in demand was seen across both competitive and non-competitive bids.

The amount of competitive bids increased to S$10.8 billion from S$10.7 billion in the previous auction. 

The amount of non-competitive bids rose to S$1.4 billion from S$1.3 billion in the previous auction.

The increase in T-bill applications might be a surprise to some investors, given the perception that there might be lower demand for T-bills in the auction closer to the month-end. 

This is because there is a higher chance of losing additional CPF interest if the funds are not credited back into the CPF-OA account back on time. 

However, there is a possibility of just losing one additional month of CPF interest in this 6-month T-bill auction if we instruct the bank to transfer the funds back to the CPF-OA account on the day the T-bill matures, and the bank is able to effect the transfer within one working day. 

This might have led to sustained strong demand for the 6-month T-bill.

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#2 - Average yield of bids submitted declined

It was also interesting to note that the average yield of bids submitted fell to 3.15% p.a. from 3.26% p.a. previously.

The median yield held steady at 3.60% p.a. 

In other words, we did not see significantly higher bids being made in the latest auction, even with the increase in US government bond yields in recent weeks. 

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#3 – T-bill issuance size larger than in the past 

One change in the latest auction is that the total amount of T-bills issued was at S$5.3 billion, higher than the previous auction of S$5.0 billion.

This also marks the highest level of 6-month T-bill issuance in recent years.

This could have partly led to an increase in the cut-off yield in the current auction, especially with the total amount of applications staying about the same compared to the previous auction, and no significant change in the competitive bids submitted as indicated by the median yield.

What would Beansprout do?

As some in the Beansprout community have pointed out, the 3.85% yield on the 6-month T-bill looks attractive in contrast to the falling fixed deposit interest rates in recent weeks.  

However, the disadvantage of the T-bill is that we are not able to tell what the yield is going to be in advance. 

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 8 June 2023. 

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