Will SVB’s collapse lower the T-bill yield in the 16 March auction?

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By Beansprout • 13 Mar 2023 • 0 min read

Singapore government bond yields have fallen with the decline in US government bond yields following the collapse of Silicon Valley Bank (SVB).

Singapore T-bill auction 16 March 2023
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What happened?

The collapse of Silicon Valley Bank (SVB) in the US has been making the news headlines as the largest bank failure since the global financial crisis. 

This has impacted the share prices of stocks in the financial sector, including index heavyweights such as JP Morgan and Charles Schwab. 

However, another important development is that US government bond yields have fallen sharply, as investors seek to put their money in safer assets. 

Let us take a look as to whether this may also cause a sharp fall in the yield of the upcoming 6-month T-bill auction (BS23105W) on 16 March 2023. 

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Source: MAS

 

Will SVB’s collapse drive down the T-bill yield in the auction on 16 March?

#1 - US bond yields have fallen sharply 

Someone in the Beansprout telegram community shared that the 2-year US government bond yield has seen the largest 3-day decline since the aftermath of the 1987 stock crash. 

Indeed, the 2-year US government bond yield fell to around 4.1% from close to 5.1% less than one week ago. 

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Source: Tradingview

 

This sharp decline in government bond yield has also been seen in the 6-month US government bond yield, which fell to around 4.7% from above 5.3% last week. 

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Source: Tradingview

 

#2 – Singapore bond yields have also fallen but to smaller extent

The 6-month Singapore government bond yield has remain quite stable in the past week at 3.94% p.a.

However, there has been a more visible decline in the yield on Singapore government bonds of longer maturities. 

For example, the yield on the 10-year government bond has fallen to 3.10% p.a. on 13 March from 3.40% p.a. on 9 March.

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Likewise, the cut-off yield on the 12-week MAS note has fallen to 3.95% p.a. on 7 March from 4.07%  p.a. on 28 Feb.

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#3 – Less alternative options to consider 

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 saw an increase in the amount of T-bill applications in the auction on 2 March to $13 billion from $11 billion in the previous auction.  

Demand has stayed strong even after OCBC started offering 3.88% p.a. with a 8-month fixed deposit using CPF Ordinary Account (CPF OA) funds.

As the promotion by OCBC has ended, some investors may decide to put their money into T-bills compared to fixed deposits once again. 

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What would Beansprout do?

The collapse of SVB has led to a sharp decline in US government bond yields in recent days. 

This has also led to a fall in Singapore government bond yields, albeit with a smaller decline. 

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

Notwithstanding the fall in global bond yields, some investors may choose to refer to fixed deposit rates to determine the yield that they bid for the T-bill. 

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, 7 months and 12 months, even as some banks have cut their fixed deposit rates in recent weeks. 

Here’s a quick reminder: The auction will be held on 16 March (Thur), which means that we would need to put in our cash applications by 15 March (Wed). 

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

If you’re applying for the T-bill using your CPF OA funds, we share how you can apply for T-Bills using CPF OA via DBS i-banking.  

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