T-bill yield bounces to 1.44% as demand slumps

What happened?

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

The cut off yield for the 6-month Singapore T-bill (BS25119Z) increased to 1.44% in the auction on 25 September from 1.38% in the previous auction.

This slight rebound comes after several months of falling T-bill yields, and represents the first bounce in the T-bill yield since March this year.

For investors still looking at Singapore T-bills as a place to generate passive income. I'll share how it compares to the best fixed deposit rates as a place to park your spare cash. 

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

#1 - Demand for the Singapore T-bill declined

Total applications for the 6-month Singapore T-bill decreased to S$13.5 billion in the latest auction on 25 September from S$15.7 billion on 11 September. 

The fall in applications is likely due to the reduced investor demand at the current lower yield levels.

The amount of competitive bids decreased to S$12.6 billion. 

If you placed a competitive bid below 1.44%, you would receive 100% of your requested T-bill allocation.

If you bid at exactly 1.44%, the allocation would be around 4%.  

The amount of non-competitive bids decreased to S$903.5 million. 

Since the amount of non-competitive bids was within the allocation limit, all eligible non-competitive bids received full allocation for the T-bill. 

#2 - T-bills issued decreased 

The amount of T-bills issued was at $7.7 billion, which was slightly lower than the previous auction on 11 September at $7.8 billion. 

With the lower amount of T-bill applications, the ratio of applications to T-bills issued (bid-to-cover ratio) decreased to 1.75x. 

#3 - Median yield of bids submitted rose slightly

The median yield of bids submitted rose slightly to 1.33% from 1.31% in the previous auction. 

The average yield of bids submitted fell slightly to 1.23% from 1.27% in the previous auction, inline with the fall in bond yields in recent weeks with the US Federal Reserve interest rate cuts. 

Given the median yield and the cut-off yield, this suggests that a substantial number of bids were placed in the 1.33% to 1.44% range, on par with the best 6-month fixed deposit rate in Singapore. 

What would Beansprout do?  

The increase in the T-bill cut-off yield to 1.44% is likely due to lower demand for T-bills, as the average and median yields of vids submitted have remain subdued. 

Following the bounce in T-bill cut-off yields, yields are now close to the best 6-month fixed deposit rate in Singapore of 1.40% p.a.  

However, they remain below the break-even yield for CPF OA applications, based on calculations using our CPF T-bill calculator. 

In light of this, I would consider exploring alternative ways to earn passive income in Singapore.  

For example, some savings accounts continue to offer an interest rate of above 1.44% p.a, even though banks have been cutting the interest rates in recent months.  

The latest Singapore Savings Bonds (SSB) offer a 1-year return of 1.56% and 10-year average return of 1.93% per year.

We also share the best place to park your cash by comparing T-bills with fixed deposits and savings accounts here.

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