Will the yield on the 6-month T-bill rise above 4.19% p.a. in the upcoming auction on 10 Nov?

What happened?

We’ve been getting many questions from the Beansprout community on what the yield for the upcoming 6-month T-bill auction on 10 November (BS22122Z) will be. 

Interest on the T-bill has soared after the cut-off yield on the 6-month T-bill reached 4.19% in the last auction on 27 October.

However, one of the drawbacks of the T-bill is that we will not know the interest rate at the point of application.

This has deterred many investors from applying for the T-bills, as they’d prefer the certainty of knowing the interest rates that comes with investing in Singapore Savings Bond or putting money into fixed deposit.

Hence, we will take a look at a few datapoints to see if we can pick up some indication.

Will the yield on the 6-month T-bill rise above 4.19% p.a.?

#1 – Global bond yields continue to rise

The US Federal Reserve recently raised its benchmark interest rates by 0.75 percentage point (0.75%). 

At the same time, the Fed had indicated that interest rates might peak at a higher level than previously expected. 

This has caused a further increase in bond yields in recent weeks. 

For example, the US government 1-year bond yield has climbed to 4.78% as of 8 November from 4.49% as of 27 October.

#2 – 6-month T-bill now trading at a yield of close to 4%

We can also look at the current yield of 6-month T-bills in the market. 

Based on data from the MAS, the yield on the 6-month T-bill BS22121F maturating on 2 May 2023 is 3.98% as of 8 November 2022. 

This is about 0.32 percentage points (0.32%) higher than where it was on 21 October. 

One thing we’ve noticed is that the cut-off yield on the T-bill auctions is typically higher than the market yield at the time of the auction.

For example, in the auction on 13 October, the cut-off yield on the 6-month T-bill was at 3.77%. This was higher than the closing yield on 12 October of 3.33%, and closing yield on 13 October of 3.59%. 

If this trend were to continue, then the cut-off yield of the upcoming T-bill auction could be above the closing yield of 3.98% on 8 November. 

#3 – Recent auction for MAS 3-month note was at 4.6% p.a. cut-off yield

The other thing we can check is the latest auction results on the MAS 3-month note.  

In case you’ve not heard of the 3-month note, that’s because it is not available to retail investors. Only institutional investors can participate in the auction on the 3-month note currently. 

The latest cut-off yield on the MAS 3-month note was at 4.6% p.a., rising further from 4.25% on 18 October. 

What would Beansprout do? 

By looking at the various data above, there’s some evidence to suggest that bond yields have gone up further from where they were 2 weeks ago when the cut-off yield reached 4.19%. 

However, there is no certainty on the interest rates prior to the auction, as the eventual cut-off yield will still depend on the demand and supply of T-bills in each auction.

For many of Beansprout’s regular readers who are used to putting in non-competitive bids, we’d like to offer a reminder again that if the amount of non-competitive bids exceeds 40%, the bond will be allocated on a pro-rated basis. 

What this means is that based on the issuance size of S$4.5 billion, non-competitive bids will be allotted first up to S$1.8 billion of T-bill, based on 40% of total issuance amount. 

The amount of non-competitive bids already hit S$1.8 billion in the last auction on 27 October, and there might be more investor demand after the interest rate exceeded 4% in the last auction. 

If being able to get a full allocation is important to you, one of the ways to overcome the allotment limit for non-competitive bids is to put a competitive bid. 

When you submit a competitive bid, you will invest in the bond only if it yields above a certain level. You can indicate the yield you are willing to accept in percentage terms, up to 2 decimal places. 

However, do note that if your competitive bid is similar or higher than the cut-off yield, you may still not get the full amount that you applied for. 

Pro Tip: A lower yield represents a more competitive bid, as you are indicating that you will accept a lower interest rate. You can submit multiple competitive bids.

You can find out more about competitive vs non-competitive bids in our T-bill FAQ.

If you still do not like the uncertainty of not knowing the interest rate on the T-bill auction in advance, one potential strategy is to build a T-bill ladder to reduce your exposure fluctuating interest rates.

You can also ask us your burning question on T-bills in our Telegram group.  

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