Will the T-bill yield fall further in the auction on 1 Feb?

What happened?

Some investors have asked what the yield on the upcoming 6-month Singapore T-bill auction (BS24102S) on 1 February might be.

This came after the cut-off yield on the latest 1-year T-bill fell sharply to 3.45%.

We have also seen a decline in the cut-off yield in the previous 6-month T-bill auction to 3.7%.

Naturally, many are wondering if we might see a further fall in the yield on the 6-month Singapore T-bill.

Let us look at the latest indicators to find out if it might still be worthwhile to subscribe to the upcoming 6-month T-bill.

Will the 6-month Singapore T-bill yield fall further?

#1 – US government bond yields have moved up

After declining sharply in late last year, US government bond yields have rebounded slightly in recent weeks. 

With the latest economic data showing that the US economy has remained resilient, investors have moderated their expectations of a sharp interest rate cut this year. 

For example, the 10-year US government bond yield has risen to 4.14% from below 4% earlier this year. 

However, it still remains significantly below the recent peak of 5%.

Likewise, the US 2-year government bond yield has bounced slightly from its recently low of 4.15% to reach 4.35%.

#2 – Singapore government bond yields more mixed 

Earlier, we shared that the 10-year Singapore government bond yield has followed US government bond yields higher.

This may lead to a higher 10-year average return on the next Singapore Savings Bond.

The closing yield on the 10-year Singapore bond has rebounded to 2.95% on 26 January from as low as 2.79% on 15 January. 

However, the yield on shorter-maturity bonds has been declining.

For example, the closing yield on the 6-month Singapore T-bill has fallen to 3.70% on 26 January 2024.

Likewise, the cut-off yield on the 3-month MAS note has fallen to 3.99% in the auction on 23 January from 4.05% in the previous auction. 

#3 – Smaller issuance size compared to previous auction

There was a surge in applications to S$13.6 billion in the previous 6-month T-bill auction on 18^th January. This represents the highest level of applications since October last year. 

The rise in applications more than offset an increase in T-bill issued, leading to a decline in the cut-off yield.

After reaching a high of S$6.4 billion, the amount of 6-month T-bills to be issued will fall slightly to S$6.3 billion in the upcoming auction. 

This may mean that if the demand for the T-bill continues to rise further, there may be downward pressure on the cut-off yield in the auction. 

What would Beansprout do?

While the closing yield on the 6-month T-bill has remained elevated at 3.7%, the eventual cut-off yield may fall further if demand continues to be strong. 

One of the ways we can ensure that we do not end buying the T-bill with a lower than expected yield is to put in a competitive bid. 

As a recap, we will only invest in the T-bill if the yield is above a certain level when we submit a competitive bid. 

This is in contrast to putting in a non-competitive bid, which will mean that we will be buying the T-bill at the cut-off yield. 

However, the disadvantage of a competitive bid is that we will not be allocated the T-bill if our bid is above the cut-off yield. 

Hence, we will look at the interest rates offered by alternative options to determine our bids for the T-bill.

For example, if we are looking to invest in the T-bill using cash, we may reference to the best fixed deposit rate.

With the fall in interest rates, the best 6-month fixed deposit rate has also fallen to 3.55% recently. 

For CPF applications, check out our CPF T-bill calculator to find out how much more interest you can potentially earn by investing in the T-bill.

The auction will be held on Thursday, 1 February 2024. This means that we would need to put in our cash applications for the T-bill by 9pm on 31 January (Wed).

The closing date for T-bill applications using CPF-OA differs across the three local banks.

• Applications for T-bills online using CPF OA via DBS close at 9pm on 31 Jan (Wed). Read our step-by-step guide to applying via DBS. 
• Application for T-bills online using CPF OA via OCBC close at 9pm on 31 Jan (Wed). Read our step-by-step guide to applying via OCBC
• Applications for T-bills online using CPF OA via UOB close at 9pm on 30 Jan (Tue) Read our step-by-step guide to applying via UOB. 

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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