T-bill yield falls to 3.75%. What’s driving the decline?

What happened?

The result for the latest 6-month Singapore T-bill auction (BS23122F) came out slightly later than usual.

This led some in the Beansprout community to speculate that there might be an exceptionally high amount of applications for the T-bill.

Indeed, there was a surge in the applications for the latest 6-month Singapore T-bill compared to the previous auction.

This led to a decline in the cut-off yield to 3.75% from 3.95% in the previous auction. 

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

What we learnt from the latest T-bill auction

#1 – Increase in applications for 6-month T-bill

The total amount of applications for the latest Singapore T-bill was S$13.2 billion, higher than the S$11.5 billion of applications in the previous 6-month T-bill auction.

The amount of applications rose across both competitive and non-competitive auctions.

The amount of competitive bids rose to S$10.8 billion from S$9.3 billion in the previous auction. 

The amount of non-competitive bids rose from S$2.2 billion to S$2.4 billion. As the S$2.8 billion of applications is above the allocation limit of S$2.3 billion, eligible non-competitive bids were only able to get a 95% allocation.

Combined, the S$13.2 billion of applications would represent the second highest amount of T-bill applications so far this year. 

The amount of applications was exceeded only by the T-bill auction on 12^th October, which saw total applications of S$14.7 billion. 

#2 – Higher cut-off yield in previous auction and normalisation of CPF interest likely led to higher applications

The higher amount of applications is likely due to the bounce in cut-off yield seen in the previous auction on 26 October, where it reached one of the highest level this year. 

Also, we shared that the loss of additional CPF interest in the previous auction on 26 October might have led to lower applications in the auction.

As a result, the amount of CPF applications might have normalized in the most recent auction on 8^th November, further driving an increase in demand for the T-bill.

#3 – Decline in median and average yield submitted

Like in previous auctions where there is a higher proportion of CPF applications, the average yield of T-bill bids fell.

The average yield of bids submitted fell sharply to 2.71% from 3.60% in the previous auction.

The median yield of bids submitted also fell to 3.65% from 3.77% in the previous auction. 

The decline in average and median yields of bids submitted would also reflect the fall in global bond yields following the most recent Fed meeting, where investors gained confidence that the Fed might be done with interest rate hikes. 

What would Beansprout do?

Overall, it would seem that the lower cut-off yield of 3.75% in the latest Singapore T-bill auction was driven by an increase in demand with a normalisation in CPF applications, as well as a fall in  global bond yields in the past week.

Despite the decline in cut-off yield, it remains higher compared to the recent low of 3.7% in the auction on 31 August 2023. 

The cut-off yield of 3.75% for the latest T-bill is still higher than the best 6-month fixed deposit rate of 3.6%. 

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 6-month T-bill, you can consider alternatives to park your savings before the next 6-month T-bill auction on 23 November 2023.

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. 

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