T-bill yield plunges to 3.13%. Why the sharp fall?

What happened?

Many investors in the Beansprout community were surprised by the results for the latest 6-month Singapore T-bill auction. 

The cut-off yield for the 6-month Singapore T-bill (BS24117F) on 29 August fell to 3.13%.

This would represent a sharp decline from 3.34% in the previous auction, and would also be the lowest 6-month Singapore T-bill yield since September 2022.

In this post, I will find out the reasons behind the decline in the Singapore T-bill yield.

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

#1 - Demand for the Singapore T-bill remained steady

The total amount of applications for the 6-month Singapore T-bill remained steady at S$16.0 billion, unchanged from the previous auction.

The amount of competitive bids increased slightly to S$13.9 billion,from S$13.6 billion in the previous auction.

If you had submitted a competitive bid at below 3.13%, you would receive 100% allocation of your T-bill bid amount.

If you had submitted a competitive bid at 3.13%, you may get a small amount of T-bill allocated to you, as approximately 0% of investors who had put a bid at 3.13% received allocation.

The amount of non-competitive bids fell to S$2.1 billion from S$2.4 billion in the previous auction.

As the amount of non-competitive bids is within the allocation limit, eligible non-competitive bids get 100% allocation. 

#2 Median yield and average yield were lower

The median yield of bids was 3.00%, lower than 3.20% in the previous auction.

The average yield of bids was 2.62%, also lower than the 2.83% in the previous auction.

This would reflect the fall in US government bond yields in recent weeks, after iFed Chairman Jerome Powell said that 'the time has come' for interest rates to be cut.

With the fall in US bond yields, Singapore government bond yields have declined in recent weeks too.

#3 - Potential loss of additional CPF interest had limited impact to total demand for Singapore T-bill

The amount of T-bills issued was S$6.8 billion, slightly lower than S$6.9 billion in the previous auction.

As the total applications for the T-bill was unchanged from the previous auction, the bid to offer ratio remains little changed at 2.35x.

This may come as a surprise to some investors, given the sharp decline in T-bill yields in recent months.

At the same time, there may also be less applications from investors using their CPF-OA savings in this auction, given the potential loss of additional CPF interest for the latest auction as we highlighted in our preview of the T-bill auction.

What would Beansprout do? 

The fall in US and Singapore government bond yields in recent weeks has also led to a sharp decline in the cut-off yield of the latest Singapore 6-month T-bill auction. 

This follows comments made by US Federal Reserve Chairman that 'the time has come' for interest rates to be cut. 

As a result, the 6-month T-bill yield is now at its lowest level since September 2022. It is also below the breakeven yield for CPF applications, given the potential loss of additional CPF interest in the latest auction.

With the sharp fall in the T-bill yield, it would be below the best 6-month fixed deposit rate of 3.25% p.a.

With the fall in the T-bill yield, we would also start to look for other ways to earn a higher yield on our cash.

Some of the ways include:

• Tiger Brokers is offering a interest bonus coupon that allows you to earn 6.8% p.a. with Tiger Vault. Learn more about the Tiger Vault promotion here.
• Moomoo Singapore is offering a guaranteed return of 6.8% p.a.  when you deposit your funds into Moomoo Cash Plus. Learn more about the Moomoo Cash Plus promotion here.
• Syfe Cash+ Guaranteed offers a guaranteed return of 3.5% per annum for a term of 3 months as of 29 August 2024. Learn more about Syfe Cash+ Guaranteed here. 

Singapore REITs are also commonly seen as potential beneficiaries when interest rates decline. We share our thoughts on whether it is time to buy Singapore REITs here. 

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.

The next 6-month T-bill auction on 12 September 2024, and you can set a reminder by signing up for our free email alert. 

If you are new to investing in the T-bill, check out our comprehensive guide to Singapore T-bills to learn more.

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