Will the T-bill yield fall below 3.88% p.a in the upcoming auction on 16 Feb?

What happened?

The yield on the 6-month Singapore Treasury Bill (T-bill) has been coming down in recent auctions.

In the most recent auction on 2 Feb 2023, the cut-off yield fell to 3.88% p.a., compared to 4.2% just a month ago. 

This led to many questions as to whether we will see a further decline in the 6-month T-bill yield, and if it might be better to just put our money into fixed deposit.

Let’s look at some of the recent trends to find out what could be the yield for the upcoming Singapore 6-month T-bill auction (BS23103T) on 16 February.

Will the yield on 6-month T-bill fall below 3.88% p.a?

#1 – US bond yields have gone up sharply in the past week

There has been a sharp spike in US government bond yields in the past week. 

For instance, the yield on the 1-year US government bond has risen to about 4.9% from slightly above 4.6% in early February. 

This came through after exceptionally strong US employment data led investors to think that inflation may not come down as quickly, and we may be in a high interest rate environment for longer. 

#2 – Singapore government bond yields have risen slightly too

The yield on Singapore government bonds has also gone up in the past week. 

For example, the market yield on the 6-month T-bill has risen to 3.91% as of 10 February, compared to 3.89% a week ago. 

It’s not as sharp an increase compared to US bond yields, but the decline we saw over the month of January appears to have paused. 

#3 – More options for investors to consider for CPF funds

Earlier, we explained how the T-bill auction is conducted and how the cut-off yield is determined by the competitive bids submitted.

To summarise, the cut-off yield at each auction depends on

• The amount of bids that are made
• The yields that investors are putting in their competitive bids

Generally, it is quite hard to predict the amount of competitive bids that will be put in each time.

For example, we did not see a significant surge in demand after DBS allowed T-bill applications using CPF-OA via internet banking (i-banking).

The total amount of bids for the 6-month T-bill auction stayed at about S$13 billion in the most recent auction on 2 February. 

This came through even as it was reported that 9 in 10 T-bill applications through DBS were made online using CPF funds. 

In addition, we now have OCBC offering 3.88% p.a. with a 8-month fixed deposit using CPF Ordinary Account (CPF OA) funds.

With this alternative, there could be less demand for T-bills using CPF funds. 

What would Beansprout do?

From the charts above, it would seem that government bond yields in Singapore have stopped falling in the past week.  

However, the eventual cut-off yield for the upcoming T-bill auction will still depend on competitive bids submitted. 

Some investors may choose to refer to fixed deposit rates to determine the yield that they bid for the T-bill. 

For CPF applications, OCBC has set the benchmark with a 8-month fixed deposit at 3.88% p.a. The drawback here is that you will have to go down physically to a branch to apply.

If you think that waiting in the queue would take up too much of your time and still prefer the T-bill, we share how you can apply for T-Bills using CPF OA via DBS i-banking.  

For cash applications, we were still able to find a few fixed deposit accounts that offered an interest rate of close to 4.0% over 6 months, 8 months and 12 months, even as some banks have cut their fixed deposit rates in recent weeks. 

We know you’re busy, so here’s a quick reminder: The auction will be held on 16 Feb (Thur), which would mean that we would need to put in our cash applications by 15 Feb (Wed). 

Applications for T-bill using CPF close earlier, with online applications using CPF-OA ending at noon on 14 Feb (Tue).