Will the T-bill yield rise above 4.07% in the auction on 12 October?

What happened?

US government bond yields have been making the news recently after they reached a 16-year high.

In the previous auction on 28^th September, the cut-off yield on the 6-month Singapore T-bill reached 4.07%, the highest level since January this year.

As a result, there are high hopes that the cut-off yield in the upcoming 6-month Singapore T-bill auction (BS23120A) will remain elevated.

Some in the Beansprout community asked if we might even see the cut-off yield in the upcoming auction surpass 4.07%. 

Let us look at what the latest indicators are telling us on whether the cut-off yield on the upcoming 6-month Singapore T-bill auction will rise further.  

Will the 6-month Singapore T-bill yield surpass 4.07%?

#1 – US bond yields have been rising

If you have not been following the financial markets, the key development in recent weeks has been the jump in the 10-year US government bond yield.

The 10-year US government bond yield has spiked to 4.8% from about 4.2% at the start of September 2023. 

This came after the Federal Reserve signaled that interest rates may remain higher for longer.

In addition, US economic data has been very resilient, leading to expectations that the Fed may have to raise interest rates further. 

For example, US employment unexpectedly surged in September by the most since the start of the year, reflecting a strong labour market. 

However, it might be worth pointing out that the US 10-year government bond yield has risen more sharply than the US 1-year government bond yield.

Looking at the chart below, the US 1-year government bond yield has stayed elevated at about 5.4%, but has not jumped significantly from September levels.  

#2 – Singapore government bond yields have risen by smaller extent

Singapore government bond yields have also largely risen in recent weeks, corresponding with the increase in the US government bond yields.

For example, the 10-year Singapore government bond yield rose to 3.47% on 6 October from 3.40% on 29 September 2023.

However, the movement in the 6-month Singapore T-bill has been more muted. In fact, the closing yield on the 6-month Singapore T-bill fell to 3.91% on 6 October from 3.94% on 29 September.

The closing yield of 3.91% is also below the cut-off yield of 4.07% in the most recent 6-month Singapore T-bill auction.

Some investors may also be tracking the 3-month MAS note closely to get an indication of shorter maturity Singapore government bonds. 

The cut-off yield on the 3-month MAS note was at 4.07% on 3 October, not too different from the cut-off yield in the previous auction of 4.06%. 

#3 – More demand likely in upcoming auction

In the previous auction on 28 September, we observed that total applications fell to S$9.3 billion from S$11.2 billion in the auction on 14 September. 

We shared that the lower demand might be due to the loss of additional CPF interest, which led to fewer CPF applications. 

Hence, we might see a normalization of demand in the upcoming auction. 

In addition, there might be more applications as the higher yield in the previous auction is likely to attract more investors in the T-bill.    

What would Beansprout do?

US government bond yields have risen sharply in recent weeks after the US fed indicated that interest rates may stay higher for longer.

This has also led to an increase in 10-year Singapore government bond yields. However, we have not seen a significant move in the yield of the 6-month Singapore T-bill since the previous auction. 

In fact, the closing yield on the 6-month Singapore T-bill has fallen to 3.91%, below the cut-off yield of 4.07% in the previous auction. 

It is important to note that the cut-off yield in the T-bill auction will still depend on the bids that come through. 

Here, it is likely that demand for the upcoming auction might be higher with the normalisation of CPF applications and more investors drawn in by the attractive T-bill yield. 

At the same time, US bond yields remain volatile and might change significant in the coming days, with a knock-on impact on Singapore bond yields. 

With several factors that could impact the eventual cut-off yield, we can refer to the latest fixed deposit rates if we are looking to make competitive bids using cash. 

The best 6-month fixed deposit rates in October remains at 3.60% per annum, unchanged from the previous month. 

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 12 Oct (Thur), which means that we would need to put in our cash applications by 9pm on 11 Oct (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 11 Oct (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 11 Oct (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 10 Oct (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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