Will the T-bill yield rebound in the auction on 15 Feb?

What happened?

Many have asked it might still be worthwhile applying for the Singapore T-bill. 

After all, we have seen a consistent decline in the cut-off yield of the 6-month Singapore T-bill to 3.54% in the auction on 1 February. 

The cut-off yield on the 1-year Singapore T-bill also fell to 3.45% in the auction on 25 January.

The next 6-month Singapore T-bill auction (BS24103H) will be on 15 February 2024. 

Let us look at the latest indicators to find out if it we might see a bounce in the cut-off yield in the upcoming 6-month T-bill auction.

Will the 6-month Singapore T-bill yield rebound? 

#1 – US government bond yields have bounced slightly

US government bond yields have moved up slightly in recent weeks, after falling sharply towards the end of 2023.

This came after Fed Chairman Jerome Powell indicated that a rate cut in March is unlikely. 

Investors have hence been moderating their expectations of a rapid decline in interest rates this year. 

The 10-year US government bond yield has bounced to about 4.2% from 3.9% at the end of January.

Likewise, the 2-year US government bond yield has bounced to about 4.5% from 4.2% at the end of January.

#2 – Singapore T-bill yields have also rebounded slightly 

The yields on Singapore government bonds have also rebounded with the higher US government bond yields.

The closing yield on the 10-year Singapore government bond increased to 2.99% as of 9 February from 2.87% at the start of February. 

The yield on shorter maturity Singapore government bonds has increased by a smaller extent.

For example, the closing yield on the 6-month Singapore T-bill was at 3.58% on 9 February, slightly higher than the cut-off yield of 3.54% in the auction on 1 February.

#3 – Higher T-bill issuance might support cut-off yield 

There was a surge in applications to S$14.6 billion in the previous 6-month T-bill auction on 1^st Feb, close to the previous record high. 

The rise in applications led to a sharp decline in the cut-off yield in the auction.

The good news for T-bill investors is that there total amount of T-bills to be issued will rise to a record $6.6 billion in the auction on 15 February. 

It remains to be seen if the larger issuance size will lead to a higher cut-off yield in the upcoming auction.

If demand for the T-bill remains elevated, then we might to see a continued decline in the cut-off yield, like in the auction on 18 January when the issuance size was raised to $6.4 billion.

However, if demand for the T-bill falls as investors are deterred by the lower yield in recent auctions, then we might see a rebound in the cut-off yield in the upcoming auction. 

What would Beansprout do?

Overall, it seems like the rebound in US government bond yields and higher T-bill issuance size may help to support the T-bill yield. 

However, the eventual cut-off yield may still fall further if demand for the T-bill 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.

The best 6-month fixed deposit rate is currently at 3.55%, close to the cut-off yield in the previous auction.  

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, 15 February 2024. This means that we would need to put in our cash applications for the T-bill by 9pm on 14 February (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 14 February (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 14 February (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 13 February (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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