T-bill yield rises to 3.83% p.a. with lower demand. Still more popular than SSB?

What happened?

The cut-off yield for the latest 6-month T-bill auction (BS23108A) on 26 April 2023 rebounded slightly from the previous auction to reach 3.83% p.a. 

This came about after the total amount of applications for the latest 6-month T-bill fell compared to the previous auction. 

In the latest Singapore Savings Bond (SSB) issuance (SBAPR23 GX23040S), all applicants within individual allotment limits were able to get full allocation, as demand for the SSB fell.

Let’s take a look to understand what led is driving the fall in demand for both the 6-month T-bill and SSB.

What we learnt from the latest 6-month T-bill auction and SSB allotment

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

The total amount of applications for the latest T-bill was at S$11.1 billion, falling from S$12.3 billion in the previous auction. 

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

The amount of non-competitive bids fell to S$669 million from S$956 million in the previous auction.

The amount of competitive bids fell to S$10.4 billion from S$11.3 billion in the previous auction.

One potential reason for the fall in applications could be due to less interest amongst CPF account holders. 

We shared earlier that it might be less worthwhile to apply for this current T-bill issuance, due to the loss of additional CPF interest for T-bill applications using CPF funds. 

We saw a similar trend in the T-bill auction on 30 March, where the loss of additional CPF interest also led to a decline in total applications. 

#2 – Average yield for T-bill bids submitted rose

The median yield and average yield of bids submitted both increased with the rise in cut-off yield in the latest auction. 

The median yield rose to 3.70% p.a. from 3.65% p.a. in the previous auction. The average yield went up to 3.43% p.a. from 3.31% p.a. previously.

Comparing the median yield and the cut-off yield, there were close to S$2.2 billion of competitive bids that were made between the median yield of 3.70% and the cut-off yield of 3.83%.

It would seem like investors have taken reference to fixed deposit rates when making these competitive bids, as the best fixed deposit rates over a 6-month period would be close to these levels as well.

#2 – Demand for T-bills still stronger than SSBs

It’s interesting to note that even with the fall in demand for the T-bill in the latest auction, the total amount of applications of S$11.1 billion still exceeded that in the auction on 30^th March. 

In contrast, there was only about S$700 million of applications for the latest Singapore Savings Bonds (SBMAY23 GX23050W).

The total amount of SSB applications was lower than the previous month’s applications of S$751 million.

With the total amount of applications within individual allotment limit being slightly lower than the total size of the SSB issuance, there was 100% allotment towards everyone who is within their individual allotment limits. 

It seems like a fall in the average 10-year yield to just 3.07% has led to less demand for the SSB in the latest issuance. 

What would Beansprout do?

It seems like there is a preference by investors for the T-bill over the SSB.

With the cut-off yield on the latest 6-month T-bill being quite close to the latest 6-month fixed deposit rates, the question that some have asked is whether it might be better to invest in the T-bill, or to put it into fixed deposit. 

There seems to be varying preference between the T-bill and fixed deposit amongst the Beansprout community.

Some investors like the T-bill because of the smaller investment size of S$1,000 required, versus a minimum deposit of S$20,000 that is required to earn the best 6-month fixed deposit rate of 3.9%.

Also, as the T-bill is issued at a discount to its face value, some like the ability to “receive” the interest payment at the point of issuance. 

On the other hand, those who prefer the fixed deposit seem to like the ability to know what interest rates they are getting for their savings without having the uncertainty of a competitive auction. 

With the yields across T-bill and fixed deposit being so similar, it is really up to an individual’s preference on which might be more suitable.

If your preference is for fixed deposits, you can check out the latest fixed deposit rates here. 

If your preference is for T-bill, the next 6-month T-bill auction will be on 11 May.

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