6-month T-bill yield climbs to 4.19%! Here’s what we learnt from the allotment result.

What happened?

It’s the time of the month again, where there’s a buzz in the Beansprout community as we await the auction result of the latest Singapore Treasury Bill (T-bill) auction.

The sense of anticipation was especially high for the BS22121F t-bill auction on 27 October 2022, as many were expecting that the yield on the 6-month T-bill will climb above 4%.

What can we learn from the latest T-bill auction

In the latest auction on 27 October, the cut-off yield on the 6-month T-bill auction surged to 4.19% per annum from 3.77% per annum on 13 October. 

This has risen together with the higher interest rates globally we have seen in the last few weeks.

What we noticed is that the total amount of non-competitive bids for the 6-month T-bill rose to S$1.8 billion from S$1.1 billion in the previous auction.

For comparison, the total amount of Singapore Savings Bonds offered in the November issuance is just at S$900 million.

The increase in non-competitive bids alone accounted for most the rise in total amount applied from S$10.2 billion to S$10.9 billion. 

However, as the non-competitive bids of S$1.8 billion is still within 40% of the total amount allotted (S$4.6 billion), 100% of non-competitive bids received allocation in this T-bill auction.

This is something worth looking out for in the next auction.

If the amount of non-competitive bids exceeds 40%, the bond will be allocated on a pro-rated basis. 

What this means is that if the total issue size of T-bill is S$4.0 billion, non-competitive bids will be allotted first up to S$1.6 billion of T-bill, based on 40% of total issuance amount. 

If the amount of non-competitive bids exceed S$1.6 billion, then you may not be able to get your full bid amount unlike previous auctions.

What would Beansprout do?

Many investors are probably rejoicing the higher interest rates for the 6-month T-bill in the auction on 27 October. 

In our view, government bonds with short maturities like the 6-month T-bill are a good way to park your spare cash in an uncertain economic environment. This is what we'd do with our portfolio.

If you missed out on the latest T-bill auction, the next auction for the Singapore 6-month T-bill will happen on 10 November 2022.

With the high interest rates on the T-bill, you can read our analysis on whether you should apply for the T-bill using your CPF here. 

Also, while the interest rate reached 4.19% per annum in the latest auction, it does not mean that the yield for the next auction will remain as high. 

The direction of interest rates in the coming months, will depend on what the US Fed does in the upcoming meeting in November. 

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