T-bill yield rises to 3.04%. Why the bounce?

What happened?

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

The cut off yield for the 6-month Singapore T-bill (BS24122E) auction on 7 November rose to 3.04%. 

This would represent a slight increase from the cut off yield of 2.99% in the previous 6-month Singapore T-bill (BS24121A) auction on 24 October.

I noticed that investors appear fairly pleased with the outcome of the latest T-bill auction, with some commenting in the Beansprout community that it's a "good yield for cash and SRS".

In this post, I will look at the most recent 6-month Singapore T-bill allotment result to understand what may be driving the higher yield. 

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

#1 - Demand for the Singapore T-bill declined further

The total applications for the 6-month Singapore T-bill declined to S$12.3 billion from S$13.5 billion in the previous auction.

This would represent a marked decline in demand for the 6-month T-bill from its peak of S$18.0 billion on 1 August, and a recent high of S$14.9 billion on 10 October. 

The decline in demand is likely to the lower yield for the T-bill in recent auctions. 

The amount of competitive bids fell to S$10.7 billion from S$12.1 billion in the previous auction. 

If you placed a competitive bid below 3.04%, you would receive 100% of your requested T-bill allocation.

For those who bid at exactly 3.04%, the allocation would be around 2%. 

Meanwhile, non-competitive bids increased slightly to S$1.6 billion from S$1.4 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 remains unchanged from previous T-bill auction

The amount of T-bills issued remained at S$6.8 billion, the same as the previous auction.

With total applications falling from S$13.5 billion to S$12.3 billion, the ratio of applications to T-bills issued decreased from 1.99x to 1.82x.

#3 - Median yield of T-bill bids was higher

The median yield of bids came in at 2.95%, slightly up from 2.93% in the previous auction. 

The higher median yield is likely due to the recent increase in government bond yields, as US economic data has been stronger than expected. 

However, the average yield of bids fell from 2.84% in the previous auction to 2.72%.

Given the median yield and the cut-off yield, this suggests that a substantial number of bids were placed  in the 2.95% to 3.04% range, slightly above the breakeven yield for the 6-month Singapore T-bill. and close to the best fixed deposit rates in Singapore. 

What would Beansprout do? 

The higher cut-off yield for the latest 6-month Singapore T-bill appears to be driven by a decline in demand of the T-bill.

At the same time, the rise in the global bond yields may have led to an increase in the median yield of bids submitted as well. 

The cut-off yield of 3.04% in the latest auction would be higher than the best 6-month fixed deposit rate in Singapore of 2.90%.

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 has risen above 3%, I would still be looking for other places to park my money to earn a higher yield.

The next 6-month T-bill auction on 21 November 2024, and you can set a reminder by signing up for our free email alert. 

You can also compare the yield on the T-bill with fixed deposits and savings accounts to find the best place to park your money here. 

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