T-bill yield falls to 3.74%. Here’s what led to the decline.

What happened?

The auction result for the latest 6-month Singapore T-bill came out later than usual today.

This led some investors to speculate that the T-bill yield may be lower with an increase in demand.

Indeed, the cut-off yield for the latest 6-month Singapore T-bill (BS23124S) fell to 3.74% from 3.8% in the previous auction. 

Let us find out what are the factors that are driving the decline in cut-off yield in the latest 6-month Singapore T-bill auction. 

What we learnt from the latest Singapore T-bill auction

#1 – T-bill demand rises from previous issuance

The total amount of T-bill applications rose slightly compared to the previous auction.

There were S$13.3 billion of applications for the latest 6-month T-bill, higher than the S$13.0 billion of applications in the previous auction.

The amount of competitive bids remained high at S$10.8 billion, unchanged from the two previous auctions.

However, the amount of non-competitive bids rose to S$2.5 billion from S$2.4 billion in the previous auction.

As the amount of non-competitive bids exceeded the allocation limit of S$2.4 billion, eligible non-competitive bids were only able to get 95% allocation. 

It is worth noting that the total amount of applications would be the second highest in the past six months, exceeded only by the auction on 12 October when the total amount of applications reached S$14.7 billion. 

#2 – Median yield falls but average yield rises

The median yield of bids submitted fell to 3.60% from 3.63% in the previous auction, reflecting the decline in bond yields globally.

As we shared earlier, bond yields have fallen in recent weeks as investors gained confidence that the Fed may be more aggressive with interest rate cuts in 2024.

However, the average yield of bids submitted rose to 3.05% from 2.90% in the previous auction. 

#3 – Smaller issuance size compared to the previous issuance

One of the reasons for the lower cut-off yield is the lower amount of T-bills issued in the latest auction.

The amount of T-bills issued fell to S$5.9 billion from S$6.0 billion in the previous auction, where it reached the highest level this year.

Based on our observations from previous auctions, a smaller amount of T-bills issued may help to push down the cut-off yield in the auction. 

What would Beansprout do? 

There appears to be a number of factors driving the decline in cut-off yield on the latest 6-month Singapore T-bill to 3.74%

In the latest auction, we saw an increase in applications, smaller issuance size, as well as lower median bids submitted compared to the previous auction.

Despite the decline, the cut-off yield on the 6-month Singapore T-bill remains higher than the best 6-month fixed deposit rate of 3.60%.

As someone in the Beansprout community pointed out, the yield of 3.74% is “still ok compared to 2.5%”. This comes as the interest rate on the CPF ordinary account (OA) has been kept at 2.5% for the first quarter of 2024.  

As such, we continue to like the T-bill as a safe way to earn a higher return on our savings in the short term. 

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.

For those who did not get your intended allotment of the T-bill, you can consider alternatives to park your savings before the last 6-month T-bill auction this year on 20 December.

For example, cash management accounts allow you to earn a potentially higher return on your cash in a relatively safe way.  

Otherwise, you can consider high-yield savings accounts that may allow you to earn a higher interest rate on your savings. 

If you would like to secure the high yields over a longer time period, then it might be worth considering Singapore Savings Bonds (SSBs), where the current issuance offers a 10-year average return of 3.07% per year. 

Join the Beansprout Telegram group and Facebook group for the latest insights on Singapore stocks, REITs, bonds and ETFs. 

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