T-bill yield dives to 2.75%. What's driving the sharp fall?

What happened?

I was surprised by the result for the latest 6-month Singapore T-bill auction.

The cut off yield for the 6-month Singapore T-bill (BS25104H) auction on 27 February was at 2.75%.

This would represent a sharp decline in the T-bill yield compared to the cut-off yield of 2.90% in the previous 6-month T-bill auction on 13 February. 

It would also be the lowest yield on the 6-month Singapore T-bill since July 2022. 

Like myself, many in the Beansprout Telegram community were interested to find out what is driving the fall in the T-bill yield, and what are some alternatives to consider if we are not able to get our planned allotment. 

Let's dive in to find out more. 

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

#1 - Demand for the Singapore T-bill remains high

The total applications for the 6-month Singapore T-bill was at S$20.1 billion, declining from S$23.3 billion in the previous auction.

While this represents a moderation from the record high in the previous auction, demand remains strong with the second-highest amount of applications in history. 

The amount of competitive bids fell to S$17.3 billion from the record high of S$19.7 billion in the previous auction, but remained way above the S$13.0 billion of bids in the auction on 28 January. 

If you placed a competitive bid below 2.75%, you would receive 100% of your requested T-bill allocation.

If you bid at exactly 2.75%, the allocation would be around 4%. 

The amount of non-competitive bids fell to S$2.8 billion from approximately S$3.6 billion in the previous auction.

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 - Applications elevated compared to T-bills issued 

The amount of T-bills issued increased slightly to S$7.5 billion from S$7.3 billion in the previous auction, representing the largest amount of T-bills being issued.

With total applications falling from S$23.3 billion to S$20.1 billion, the ratio of applications to T-bills issued fell from 3.19x to 2.69x 

The ratio of T-bill applications to T-bill issued remains elevated compared to the historical average. For example, the ratio was at 2.55x in the auction on 16 January 2025 when the T-bill yield dipped to 2.99%. 

#2 - Median and average yield of T-bill bids fell sharply

The median yield of bids submitted fell to 2.69% from 2.78% in the previous auction.

Similarly, the average yield of bids submitted fell to 2.36% from 2.52%.

The fall in median and average yield of bids submitted would reflect the fall in global bond yields in recent days, as investors increasingly expect the Fed to cut interest rates more aggressively in 2025 with weakening US economic data. 

According to the CME Fedwatch Tool, investors are now expecting two interest rate cuts by the US Federal Reserve in 2025, an increase from just one interest rate cut previously. 

This follows recent economic data which suggested slowing retail sales and weakening consumer confidence in the US with rising inflation concerns. 

The low average yield of bids submitted also means that there were some bids that were made at fairly low levels, which pulled down the average yield of bids submitted. 

Given the median yield and the cut-off yield, this suggests that a substantial number of bids were placed in the 2.69% to 2.75% range, below the best fixed deposit rate in Singapore. 

With the potential loss of additional CPF interest in the current auction, the cut-off yield of 2.75% would also be below the breakeven yield for applications using CPF-OA. 

What would Beansprout do? 

The decline in T-bill yields seems to be driven by continued strong demand, as well as a fall in global bond yields in recent days. 

With this fall in the cut-off yield to 2.75% in the latest auction, the T-bill yield is now below the best fixed deposit rate in Singapore. 

It would also be below the break-even yield for CPF OA applications, based on calculations using our CPF T-bill calculator.

With the fall in the Singapore T-bill yield, I would be looking for ways to allow my savings to earn a higher yield in a relatively safe way.

For example, many in the Beansprout community have been discussing the UOB Stash account, which offers an interest rate of up to 3.0% p.a. for $100,000 of deposits. In addition, you can earn up to S$688 in guaranteed cash with the UOB Lunar New Year pot of gold promotion. 

I also shared how bond funds allow us to gain exposure to a basket of bonds which may see price appreciation if interest rates come down. 

I would also consider selected high quality Singapore REITs which may offer a higher dividend yield compared to the T-bill yield too.  

If you are still interested in applying for the T-bill, the next 6-month T-bill auction will be on 13 March. You can set a reminder by signing up for our free email alert below.

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