Will the T-bill yield fall further in the auction on 14 September?

What happened?

The cut-off yield on the Singapore 6-month T-bill has fallen to reach 3.70% in the auction on 31 August from a recent high of 3.99% on 6 July.

The yield on the 6-month Singapore T-bill declined even as US government bond yields. Earlier this week, the US 2-year government bond yield rose to above 5% again, as stronger than expected services data raised concerns over the potential for additional rate hikes. 

Naturally, there have been many questions on whether we will see a further decline in the 6-month Singapore T-bill yield in the upcoming auction (BS23118S) on 14 September 2023.

Let us look at what the latest indicators are telling us on whether it might be worthwhile to apply for the upcoming 6-month Singapore T-bill auction.

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

#1 – US bond yields remain elevated

We have seen a sharp spike in US government bond yields in recent weeks with growing concerns that the Fed may have to keep interest rates higher for longer. 

Earlier, we saw a sharp increase in the yield of bonds with a longer maturity period, such as the 10-year US government bond. 

US government bond yields remain elevated over the past week. The 2-year US government bond yield surpassed the 5% level once again this week, a level reached earlier this year following the Silicon Valley Bank collapse and previously in 2007.

Likewise, the 1-year US government bond yield has stayed at about 5.4% over the past few weeks. 

#2 – Singapore bond yields have been stable

Despite the elevated US government bond yields, Singapore government bond yields have not risen significantly in recent weeks.

For example, the yield on the Singapore 6-month T-bill has been relatively unchanged over the past week, closing at 3.71% on 8 September 2023. 

This is not too different from the cut-off yield on the 6-month T-bill auction on 31 August 2023. 

The closing yield on the 1-year Singapore T-bill has also been stable at 3.68% over the past week.

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 4.00% on 5 September. Once again, this is quite similar to the average cut-off yield over the past few weeks, which have been in the range of 3.94% to 4.10%. 

#3 - Demand for Singapore T-bills has been falling

The total amount of applications has fallen to S$11.2 billion in the auction on 31 August from $12.3 billion in the auction on 3 August. 

It remains to be seen if the decline in the cut-off yield in the latest auction might lead to a further drop in applications in the upcoming auction. 

What would Beansprout do?

While US government bond yields have remain elevated, it does not seem like there has been a rebound in the closing yields for the Singapore 6-month and 1-year T-bill. 

The closing yield for the Singapore 6-month T-bill was 3.71% on 8 September, little changed from the cut-off yield in the previous auction. 

With the best 6-month fixed deposit rate currently at 3.40% per annum after CIMB slashed its promotional rate, the yield on the 6-month Singapore T-bill is still higher compared to fixed deposits.

You can check out our guide to the best fixed deposit rates in Singapore to compare the latest rates offered.

The yield on the 6-month Singapore T-bill is also above the promotional interest rate of 3.50% per annum offered by the CIMB FastSaver account and Maybank iSAVvy account.

For CPF applications, the cut-off yield of 3.70% in the previous the 6-month T-bill auction is above the breakeven yield to earn a potentially higher interest rate for CPF Ordinary Account (OA) funds. 

We can calculate how much more interest we can potentially earn by investing our CPF funds into the T-bill at different interest rates using our T-bill calculator. 

The auction will be held on 14 Sep (Thur), which means that we would need to put in our cash applications by 9pm on 13 Sep (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 12 noon on 12 Sep (Tue). Read our step-by-step guide to applying via DBS. 
• Application for T-bills online using CPF OA via OCBC close at 9pm on 13 Sep (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 12 Sep (Tue) Read our step-by-step guide to applying via UOB. 

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