T-bill yield falls further to 3.7%. Time to switch to fixed deposits?

What happened?

Many investors were hoping that we would see a rebound in the yield on the 6-month T-bill, after the yield on US government bonds climbed to the highest levels in 16 years recently.

However, the cut-off yield on the latest 6-month T-bill auction (BS23117Z) on 31 August 2023 declined further to 3.70%.

This marks a further decline from the cut-off yield of 3.73% in the previous auction on 17 August.

It would also be the second lowest cut-off yield for the Singapore 6-month T-bill auction so far this year. Only the auction on 16^th March offered a lower yield of 3.65%.

Let's take a deeper look at what might be some reasons driving the lower yield on the 6-month T-bill

What you need to know about the latest Singapore T-bill auction on 31 August

#1 – Demand for T-bills declined further compared to the previous auction.

The total amount of applications for the latest T-bill was at S$11.2 billion, a decline from S$11.8 billion in the previous auction.

The amount of non-competitive bids remained the same at S$1.6 billion. As this is below the allocation limit for non-competitive bids, all eligible non-competitive bids received full allocation of the T-bill.

However, the amount of competitive bids fell to S$9.6 billion from S$10.2 billion in the previous auction. 

#2 – Median yield of bids submitted fell slightly

The median yield of bids submitted for the 6-month T-bill was lower compared to the previous auction, even as US government bond yields have spiked in recent weeks.

The median yield of bids submitted fell to 3.57% from 3.63% in the previous auction.

However, the average yield of bids submitted rose to 2.95% from 2.86% in the previous auction.

Based on the median yield and cut-off yield, it seems like there was a significant amount of bids that were made in the range of 3.57% and 3.7%.

What would Beansprout do?

It appears that the lower cut-off yield of 3.70% in the latest auction is due to slightly lower bids submitted by applicants compared to the previous auction, as reflected in the decline in median yield.

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.

With a sizeable portion of competitive bids in the range of 3.57% to 3.70%, it would seem that investors have taken reference to the fixed deposit rates when putting in their competitive bids.

Despite the fall in cut-off yield in the latest 6 month T-bill auction, it is still above the best 6-month month fixed deposit rate of 3.50%.  

The best 9-month and 12-month fixed deposit rates are slightly better at 3.55% per annum. 

In other words, while we are seeing the rates offered by banks for fixed deposits and the cut-off yield on the T-bill getting closer to each other, the yield on the 6-month T-bill is still above the best fixed deposit rates. 

If you 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 14 September 2023.

Recently, more investors have been looking at cash management accounts to earn a potentially higher yield.

Alternatively, we can consider a high yield savings account that is liquid. The CIMB Fast Saver account and the Maybank iSAVvy account are both offering a promotional interest rate of 3.5% per annum for new customers or fresh funds by existing customers currently.

You can find our guide to the best savings accounts with the highest interest rate here.

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