T-bill yield soars to 3.99% in latest auction. Why the jump?

What happened?

Many in the Beansprout community were elated that the cut-off yield for the latest 6-month T-bill auction (BS23113V) on 6 July increased to 3.99% p.a. 

This is higher than the cut-off yield of 3.89% p.a. in the previous auction, and represents the highest cut-off yield since January this year.

Let’s explore further to understand what is driving the rise in the cut-off yield of the 6-month T-bill.

What we learnt from the latest T-bill auction

#1 - Increase in amount of non-competitive bids

The total amount of applications for the latest T-bill was at S$10.3 billion, representing a slight increase from S$9.9 billion in the previous auction. 

Non-competitive bids rose to S$2.2 billion from S$1.8 billion in the previous auction. As the amount of non-competitive bids exceeded the allotment limit of S$2.16 billion or 40% of the total issuance size of S$5.4 billion, non-competitive applications were only able to receive about 96% of their bid amounts. 

In other words, for S$100,000 of non-competitive bids submitted, you'd be eligible to receive S$96,000 allotment of the T-bill at the cut-off yield of 3.99 p.a. 

It is also worth noting that only 2% of competitive bids at the cut-off yield were allotted.

As someone in the Beansprout Telegram group shared, this would mean that if you had put in a competitive bid for S$100,000 at 3.99%, you'd be eligible to receive just S$2,000 allotment of the T-bill at the cut-off yield of 3.99%. 

What is notable is that amount of competitive bids remained steady at S$8.1 billion, unchanged from the previous auction.

If you had submitted a competitive bid of 3.98% and below, you'd receive full allocation at the cut-off yield of 3.99% p.a.

#2 – Average and median yields submitted fell

Despite the higher cut-off yield for the latest T-bill auction, both the average and median yields of bids submitted fell.

The median yield fell to 3.50% p.a. from 3.60% p.a. in the previous auction.

The average yield fell to 2.87% p.a. from 3.07% p.a. in the previous auction.

This would mean that investors who applied were generally expecting a lower yield compared to the previous auction even though US bond yields have climbed in recent weeks.

#3 – T-bill issuance size larger than in the past 

One change in the latest auction is that the total amount of T-bills issued was at S$5.4 billion, higher than the previous auction of S$5.0 billion.

This also marks the highest level of 6-month T-bill issuance in recent years.

This could have partly led to an increase in the cut-off yield in the current auction, especially with higher amount of applications compared to the previous auction, and lower competitive bids submitted as indicated by the median yield and average yield.

In the auction on 25th May when the amount of T-bill allotted was at S$5.3 billion, we also saw an increase in cut-off yield to 3.85% p.a. compared to the previous auction 

What would Beansprout do?

The increase in cut-off yield in the latest 6-month T-bill is definitely good news for those looking to earn a higher interest on their savings. 

With the most recent increase in the cut-off yield, the 6-month T-bill now clearly offers a higher interest rate compared to the best fixed deposit rate. 

This is especially so as UOB and OCBC have just cut their 6-month fixed deposit rate to 2.7% p.a.

If you missed out on the current T-bill auction, you can consider parking your savings in various cash management accounts or savings accounts while waiting for the next 6-month T-bill auction which will be held on 20 July 2023. 

For those who are looking to lock in interest rates for a longer period of time, it might also be worth considering the upcoming 1-year T-bill auction on 27 July 2023. 

Check out our CPF-Tbill calculator to find out how much more interest you can potentially earn by investing in the Singapore T-bill using your CPF Ordinary Account (OA) savings.

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