T-bill yield falls to 3.7%. Here’s why the yield is lower

What happened?

There was much discussion about the latest Singapore T-bill auction in the Beansprout community today. 

The cut-off yield for the 6-month Singapore T-bill auction (BS24109A) on 9 May was at 3.7%, a slight decline from 3.74% in the previous auction.

This would mark the third consecutive decline in the cut-off yield on the 6-month T-bill, after it reached a recent high of 3.8% on 27 March. 

Many investors were interested to find out why the yield on the T-bill has fallen, even as the US Federal Reserve has kept interest rates unchanged in its latest meeting.

Let us find out why the yield on the Singapore T-bill has declined in the latest auction. 

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

#1 - Demand for Singapore T-bill reached a new record high

The total amount of applications for the 6-month Singapore T-bill climbed to a new record of S$16.3 billion, from S$14.4 billion in the previous auction.

This would exceed the previous high of S$16.0 billion in the auction on 11 April 2024. 

Applications rose across both competitive and non-competitive bids.

The amount of competitive bids rose to S$13.0 billion from S$11.7 billion in the previous auction.

If you had submitted a competitive bid at 3.69% or below, you would receive 100% allocation of your T-bill bid amount.

If you had submitted a competitive bid at 3.7%, you would receive approximately 26% of your T-bill bid amount.

The amount of non-competitive bids rose to S$3.3 billion from S$2.7 billion in the previous auction.

As the amount of non-competitive bids exceeded the allocation limit, eligible non-competitive bids were only able to get approximately 81% allocation. 

However, as T-bills are allocated in a minimum denomination of S$1,000, this means that you may end up with a S$8,000 allotment for a S$10,000 non-competitive bid.

This would also mark the fifth consecutive auction that non-competitive bids were not able to receive full allocation. 

#2 Average and median yield of bids declined 

The median yield of bids was at 3.55%, below the 3.65% in the previous auction.

The average yield of bids was at 3.13%, a bigger decline from 3.40% in the previous auction.

What this indicates to me is that investors have lowered their yield expectations. 

This may be due to the decline in fixed deposit rates we have seen in recent months. 

Also, US government bond yields have fallen in the past week following US Federal Reserve Chairman Jerome Powell’s comments that the central bank’s next interest rate move is unlikely to be a hike. 

This has helped to revive investor confidence that we may start to see interest rate cuts soon.

#3 A larger issuance was met with even stronger demand

The amount of T-bills issued in the latest auction rose further to S$6.8 billion, from S$6.6 billion in the previous auction.

Nevertheless, demand for T-bills remains strong. The amount of T-bill applications was 2.40x the size of the T-bills issued. 

This compares with just 2.18x in the previous auction. 

This could have caused the T-bill yield to come down in this latest auction.

What would Beansprout do? 

Overall, the fall in the cut-off yield to 3.7% in the latest auction appears to be driven by a surge in demand, as well as lower average yield of bids submitted. 

However, the yield on the T-bill remains high compared to its historical average levels. 

Despite the fall in the cut-off yield on the 6-month T-bill, it remains attractive compared to the best 6-month fixed deposit rates of 3.35% p.a. 

Hence, we consider the T-bill to be 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.

If you did not get your desired allocation of the 6-month T-bill, there are a few alternatives that we would consider.

Firstly, Syfe Cash Plus Guaranteed offers a 3-month and 6-month guaranteed return of 3.75% p.a., slightly above the cut-off of 3.7%. Learn more about Syfe Cash Plus Guaranteed here. 

Next, Moomoo is offering a guaranteed return of 6.8% p.a. for 30 days when you deposit your funds into Moomoo Cash Plus. Also, get an exclusive $50 voucher when you sign up for a Moomoo account via Beansprout. Learn more about the promotion here.

The next 6-month T-bill auction on 23 May 2024, and you can set a reminder by signing up for our free email alert. 

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If you are new to investing in the T-bill, check out our comprehensive guide to Singapore T-bills to learn more.

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