T-bill yield bounces to 3.95%. What's driving the increase?

What happened?

Many investors were happy to see that the cut-off yield on the latest 6-month Singapore T-bill auction (BS23121E) rose to 3.95%.

The bounce in the cut-off yield is undoubtedly a relief for T-bill investors, after the cut-off yield fell to 3.87% in the previous auction.

The cut-off yield in the recent 1-year T-bill auction had also declined to 3.7%.

The cut-off yield of 3.95% would also mark the one of the highest yield for the 6-month T-bill auction in recent months, exceeded only by the yield of 4.07% in the auction on 28^th September. 

Let us find out why is driving the bounce in the cut-off yield in the latest 6-month Singapore T-bill auction.

What we learnt from the latest T-bill auction

#1 – Demand lower compared to previous auction

The total amount of applications for the latest Singapore T-bill was at S$11.5 billion, lower than the S$14.7 billion of applications in the previous 6-month T-bill auction.

The amount of applications fell across both competitive and non-competitive bids.

The amount of competitive bids fell to S$9.3 billion from S$11.9 billion in the previous auction.

The amount of non-competitive bids fell to S$2.2 billion from S$2.8 billion in the previous auction.

With the amount of T-bills issued increased to S$5.7 billion this auction, the amount of non-competitive bids was just within the allocation limit S$2.28 billion.

As such, eligible non-competitive bids were able to get 100% allocation in the latest T-bill auction. 

#2 – Loss of additional CPF interest likely led to lower applications 

The lower amount of applications is likely due to lower CPF applications as the latest issuance will likely lead to a loss of eight months of CPF interest  (i.e. two additional months of CPF interest loss)

Just last month, we similarly saw a decline in the amount of T-bill applications and a jump in the cut-off yield in the auction on 28 September, which is also likely to lead to a loss of eight months of CPF interest. 

Despite the lower applications compared to the previous auction, it is worthy to note that the total amount of applications remain elevated.

In fact, there were close to $2.2 billion more applications in the latest auction compared to the auction on 28 September. 

#3 – Higher average and median yield of bids submitted

Apart from the lower amount of applications for the latest T-bill, the median and average yields of bids submitted for the 6-month T-bill was higher compared to the previous auction.

The median yield of bids submitted rose to 3.77% from 3.66% in the previous auction. 

The average yield of bids submitted rose to 3.60% from 3.37% in the previous auction.

Notably, the median and average yields in the latest auction were also higher than the auction on 28 September. 

This would coincide with the increase in US-government bond yields during this period.

What would Beansprout do?

The higher cut-off yield of 3.95% in the latest T-bill auction is likely driven by lower amount of applications with the loss of additional CPF interest. 

The rise in US bond yields has also led to an increase in the yield on the Singapore T-bill, as reflected in the higher median and average yield of bids submitted. 

Based on the latest cut-off yield of 3.95%, the T-bill offers a higher return compared to the best 6-month fixed deposit rate of 3.6%.

Once again, it remains to be seen if the bounce in cut-off yield can be sustained when CPF applications are normalized in the next auction. 

If you managed to subscribe to the 6-month T-bill using CPF OA funds, find out how much more interest you can potentially earn compared to the OA interest rate using our CPF T-bill calculator.

For those who did not get your intended allotment of the 6-month T-bill, you can consider alternatives to park your savings before the next 6-month T-bill auction on 8 November 2023. 

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. 

Join the Beansprout Telegram group and Facebook group for the latest insights on Singapore stocks, REITs, bonds and ETFs.