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T-bill yield rebounds to 3.85% p.a. What drove the recovery?

30 Mar 2023

There was a sharp decline in applications for the latest T-bill auction on 30 March.

In this article

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What happened?

The cut-off yield for the latest 6-month T-bill auction (BS23106N) on 30 March 2023 rose to 3.85% p.a.

This provided some relief to investors, especially after the sharp decline in yields we saw in the previous auction.

Let’s take a look and find out what drove the recovery in bond yields in the latest Singapore 6-month T-bill auction. 

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Source: MAS

What we learnt from the latest T-bill auction

#1 – Total amount of applications for T-bills fell sharply

The total amount of applications for the latest T-bill was at S$9.6 billion, falling from S$12.7 billion in the previous auction.

It would appear that the demand for T-bills has not gone up even as banks have started to cut their fixed deposit rates in recent weeks. 

Applications fell for both competitive and non-competitive bids.

The total amount of competitive bids fell to S$9.1 billion. This would represent the lowest level of competitive bids since 8 December, when demand was seasonally lower due to the December holidays.

The amount of non-competitive bids fell to S$539 million, also the lowest level in recent months. 

Some in the Beansprout community suggested that the fall in applications was due to lower CPF applications as the latest issuance will lead to a loss of eight months of CPF interest  (i.e. two additional months of CPF interest loss)

While this might have played a part in driving the lower demand, we did not see such a significant decline in applications in previous auctions which also led to loss of two additional months of CPF interest.

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#2 – Higher yields submitted for competitive bids

The competitive bids made in the latest T-bill auction were at a higher yield. 

The median yield rose to 3.65% p.a. from 3.58% p.a. in the previous auction. The average yield went up slightly to 3.43% p.a. from 3.41% p.a. previously.

Comparing the median yield and the cut-off yield, there were close to S$1.9 billion of competitive bids that were made between the median yield of 3.65% and the cut-off yield of 3.85%.

We highlighted earlier that bond yields have been very volatile in recent weeks following the collapse of Silicon Valley Bank. 

However, these concerns have partially eased in recent days, driving a move towards risk assets and lower demand for T-bills. 

This came about after UBS agreed to buy Credit Suisse and press reports suggest that the US authorities are considering the expansion of an emergency lending facility to offer banks more support.

It would seem like these global macro developments have had a more significant direct impact on the demand for T-bills. 

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What would Beansprout do?

The financial markets continue to be volatile as investors keep a watchful eye for stress within the banking sector. 

For now, the easing of such concerns has led to greater investor risk appetite, lower demand for T-bills and a higher cut-off yield in the latest auction. 

Apart from T-bills, investors can also consider fixed deposit accounts as a safe way to park your spare cash and earn a high interest rate. 

We were able to find a few fixed deposit accounts that offer an interest rate of closer to 4% p.a., slightly higher than the cut-off yield on the latest T-bill auction. 

If you missed out on the this T-bill, the next 6-month T-bill auction will be on 13 April 2023. 

Join our Telegram group to get the latest updates on the upcoming SSB and T-bill issuances!

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