Here's what to expect for the T-bill auction on 18th July

What happened?

The yield on the Singapore T-bill has been falling in recent auctions.

The cut-off yield on the latest 6-month Singapore T-bill on 4 July was at 3.7%, having declined from 3.76% in the auction on 6 June. 

This led to questions in the Beansprout community about whether we will see a further fall in the yield in the 6-month Singapore T-bill auction (BS24114V) on 18 July. 

Let us look at some of the latest indicators to find out if it might still be worthwhile applying for the T-bill.

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Will the Singapore T-bill yield fall further in the auction on 18 July?

#1 – US government bond yields have fallen sharply

Firstly, it is important to note that US government bond yields have fallen sharply in the past week. 

The US 10-year government bond yield has declined to 4.2% from 4.45% at the start of July. 

This is driven by Federal Reserve Chairman Jerome Powell’s comments that it has “made quite a bit of progress” in bringing down inflation.

In addition, the US consumer price index (CPI) showed further signs of moderation in June, providing investors with greater confidence that the Fed will start cutting interest rates in September.

The US 2-year government bond yield has fallen by a more significant extent to 4.45% from 4.75% at the start of the month, and a recent high of close to 5.0% in May. 

#2 – Singapore government bond yiels have also declined

Singapore government bond yields have also fallen in tandem with lower US government bond yields. 

The closing yield on the 10 year Singapore government bond has fallen to 3.10% on 12 July from 3.22% on 5 July.

As we can see from the chart below, there has been a fairly sizeable decline in the 10-year Singapore government bond yield from about 3.45% in April to the current level of 3.1%.

However, it is worth noting that shorter maturity Singapore government bond yields have not fallen by such a significant extent. 

The closing yield on the 6-month Singapore T-bill has remained at 3.7% on 12 July, similar to the cut-off yield in the previous auction. 

To get an indication of the yields for shorter-maturity Singapore government bonds, we can also refer to the yield on the 3-month MAS bill.

The cut-off yield was at 3.87% in the auction on 9^th July, little changed from the cut-off yield in the auction on 2^nd July. 

#3 – Larger issuance size compared to the previous issuance

The issuance size of the upcoming 6-month Singapore T-bill will be higher than the previous issuance.

There will be S$6.8 billion of T-bills issued, an increase from S$6.5 billion in the auction on 4^th July. 

In the T-bill auction on 4^h July, we saw that demand for T-bills remained strong with the total amount of T-bill applications remaining at close to a record high level of S$15.6 billion. 

Should demand for the T-bill stay unchanged, the larger issuance size may help to support the cut-off yield in the upcoming auction. 

What would Beansprout do?

With inflation easing, investors now appear fairly confident that the Fed may cut interest rates in the coming months. 

This has led to a sharp decline in US government bonds yields in the past week. Singapore government bond yields have also declined, with the yield on the longer maturity bonds falling more sharply compared to the shorter maturity bonds.

The closing yield on the 6-month Singapore government bond has stayed at 3.7% as of 12 July.

This remains above the best 6-month fixed deposit rate of 3.4% p.a. in July 2024. 

Hence, I would still consider the upcoming 6-month Singapore T-bill as a safe way to earn a higher return on our savings in the short term. 

To calculate how much more interest you can potentially earn by investing in the T-bill using your CPF OA savings, check out our CPF-T-bill calculator. 

With the T-bill yield coming down, I would also explore other ways to earn a higher yield on my cash with our guide to Where to park your cash for high yield? T-bills vs Fixed Deposit vs SSB.

I would also consider income opportunities that have a longer maturity such as the Astrea 8 PE bonds. The Astrea 8 Class A-1 Bonds offer a fixed interest rate of 4.35% p.a., and the Class A-2 Bonds offer a fixed interest rate of 6.35% p.a. 

The 6-month Singapore auction will be held on Thursday, 18 July 2024.  We would need to put in our cash applications for the T-bill by 9pm on 17 July (Wed).

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Applications for the T-bill using CPF-OA will close 1-2 business days before the auction date, and the dates differ across the three local banks.

• Applications for T-bills online using CPF OA via DBS close at 9pm on 17 July (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 17 July (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 16 July (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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