T-bill yield falls to 3.0%. Why the decline?

What happened?

The results for the latest 6-month Singapore T-bill auction are out.

The cut off yield for the 6-month Singapore T-bill (BS24124Z) auction on 5 December fell to 3.0% from 3.08% in the previous auction on 21 November. 

This represents the first decline in the cut-off yield for the 6-month T-bill after it has bounced in two previous auction. 

In this article, I will dive into the most recent 6-month Singapore T-bill allotment result to understand what may be driving the lower yield. 

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

#1 - Demand for the Singapore T-bill rose significantly

The total applications for the 6-month Singapore T-bill amounted to S$17.4 billion, a significant increase from S$13.7 billion in the previous auction.

In fact, this would represent the second highest level of applications for T-bills this year, surpassed only by the S$18.0 billion of applications on 1 August. 

The increase in demand is likely due to the increase in T-bill yields in the two previous auctions, which has made the T-bill yield exceed the best 6-month fixed deposit rate. 

The amount of competitive bids rose to S$15 billion from S$11.7 billion in the previous auction. 

If you placed a competitive bid below 3%, you would receive 100% of your requested T-bill allocation.

For those who bid at exactly 3%, the allocation would be around 4%. 

I saw some questions in the Beansprout community about what this means for investors who made a competitive bid at 3%. 

As T-bills are issued in S$1,000 denominations, this means that some applicants who submitted a competitive bid at 3.0% for amounts at S$10,000 or below may not get any allocation. 

Meanwhile, non-competitive bids increased to S$2.4 billion from S$2 billion in the previous auction.

Since these bids were within the allocation limit, all eligible non-competitive bids received a full 100% allocation. 

#2 - Issuance size slightly larger than the previous T-bill auction

The amount of T-bills issued increased to S$7.1 billion from S$7.0 billion the previous auction.

With total applications rising significantly from S$13.7 billion to S$17.4 billion, the ratio of applications to T-bills issued rose from 1.96x to 2.45x. 

This represents a fairly elevated ratio of applications to T-bills issued, once again close to the recent high bid-to-cover ratio of 2.65x in the auction on 1 August. 

#3 - Median and Average yield of T-bill bids fell 

The median yield of bids submitted fell to 2.9% fell to 2.95% in the previous auction.

Likewise, the average yield of bids submitted declined slightly from 2.76% to 2.73%.

The fall in yield bids submitted would be inline with the fall in the US government bond yield and Singapore government bond yields over the past two weeks.

Given the median yield and the cut-off yield, this suggests that a substantial number of bids were placed in the 2.9% to 3% range, slightly above the breakeven yield for CPF applications. and close to the best fixed deposit rates in Singapore. 

What would Beansprout do? 

The decline in the yield in the latest 6-month Singapore T-bill auction appears to be driven by a surge in applications, as well as a decline in US government bond yields in recent weeks. 

The cut-off yield of 3% in the latest auction would still be higher than the best 6-month fixed deposit rate in Singapore . However, it is below the best 12-month fixed deposit rate in Singapore of 3.20%. 

It would also be close to the break-even yield for CPF OA applications. 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.

Although the Singapore T-bill yield is now at 3%, I would still be looking for other places to park my money to earn a higher yield, such as high yield savings accounts. 

The next 6-month T-bill auction on 19 December 2024, and you can set a reminder by signing up for our free email alert. 

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