Will the T-bill yield continue to rise in the auction on 13 April?

What happened?

After the cut-off yield on the 6-month T-bill rebounded to 3.85% p.a. in the previous auction on 30th March, there seems to be more attention on T-bills once again. 

The increase in cut-off yield on the 6-month T-bill was in contrast to the fall in fixed deposit interest rates we have seen in recent weeks. 

This naturally led to questions about whether the cut-off yield on the 6-month Singapore T-bill could continue to rise in the upcoming 6-month T-bill auction (BS23107V) on 13 April 2023. 

Will the T-bill yield rise above 3.85% in the auction on 13 April?

#1 – US bond yields continue to be very volatile

We’ve seen significant movements in the US government bond yields after the collapse of Silicon Valley Bank.

When asked to predict what the yield would be for the upcoming 6-month T-bill auction, the answer could be very different on different days. 

For example, the yield on the US 2-year government bond has fluctuated between 3.7% and 4.1% since the start of April. 

The bond yield has initially fallen as the surprise oil production cut by OPEC has led investors to expect a higher chance of a recession and a greater likelihood that the Fed will have to start cutting interest rates

However, consistently firm employment data in the US led to a bounce in bond yields as it would seem like the Fed might have to keep interest rates high to bring inflation down. 

Likewise, the 6-month government bond yield has also been very volatile, ranging from 4.8% to 5% in the last two weeks. 

#2 – Singapore government bond yields paint a mixed picture

Despite the volatility in the US government bond yields, the 6-month Singapore government bond yield has been relatively stable at about 3.8% over the past week.

This would be quite similar to the cut-off yield on the previous 6-month T-bill auction of 3.85% p.a.

However, there have been more significant movements for the 1-year and 10-year Singapore government bond yields.

The 1-year Singapore government bond yield has risen to 3.74% on 10th April from 3.69% on 31^st March.

Over this period of time, the 10-year Singapore government bond yield has fallen to 2.79% from 2.94%. 

#3 – Wild card from online applications using CPF funds via OCBC

In the previous auction on 30^th March, there was a sharp decline in the amount of T-bill applications, as easing concerns on the global banking crisis might have led investors to look for higher-risk assets. 

The total amount of applications fell to S$9.6 billion from S$12.7 billion in the previous auction. This led to an increase in the cut-off yield to 3.85% p.a. from 3.65% p.a. in the previous auction.

One wild card that could affect demand for T-bills in this auction is OCBC allowing its customers to apply for T-bills online using CPF OA funds.

Earlier, we saw that when DBS offered its customers the ability to apply for T-bill using CPF-OA via internet banking, there was no significant increase in the amount of applications.   

It remains to be seen if there will be more OCBC customers who will make use of this new function to apply for T-bills online using their CPF funds. 

What would Beansprout do?

The global financial markets and US government bond yields remain highly volatile even as concerns about a global banking crisis have started to ease. 

While the 6-month Singapore government bond yield has stayed at about 3.8% in the past week, the final cut-off yield in the upcoming auction on 13^th April will still depend on macro-economic developments in the coming days.

In addition, there is an additional wild card from OCBC offering its customers the ability to apply for the T-bill online using CPF funds. 

One way to make sure we do not end up buying the T-bill at a lower than expected bond yield is to consider putting in a competitive bid in the auction.

We can also choose to refer to the latest fixed deposit rates to determine the yield to bid for the T-bill. We were still able to find a few fixed deposit accounts that offered an interest rate of close to 4.0% over a 6-month and 12-month period.

The auction will be held on 13 April (Thur), which means that we would need to put in our cash applications by 12 April (Wed). 

Applications for T-bills online using CPF OA via OCBC close at 9pm on 12 April. Check out how you can apply for T-Bills online using CPF OA via OCBC. 

Here’s a gentle reminder that applications for T-bills using CPF OA via DBS i-banking close slightly earlier at noon on 11 April (Tue). Check out how you can apply for T-Bills using CPF OA via DBS i-banking.