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Will the T-bill yield fall further as Fed signals rate cuts?

15 Dec 2023

The closing yield on the 6-month Singapore T-bill has remained steady at 3.77% even as US bond yields have fallen sharply.

6-month singapore t-bill auction 20 dec 2023

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What happened?

The last 6-month Singapore T-bill auction of 2023 will be held on 20 December.

In the previous 6-month Singapore T-bill auction on 7 December, the cut-off yield fell to 3.74%.

More recently, the Fed had indicated that there may be three interest rate cuts in 2024.

Hence, many investors have asked if we might see a further decline in the upcoming Singapore T-bill auction (BS23125H).

Let us look at the latest indicators to find out if it might still be worthwhile to subscribe to the upcoming 6-month T-bill.

6-month singapore t-bill auction 20 dec 2023
Source: MAS

 

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

#1 – US bond yields have fallen sharply

US government bond yields have been falling sharply since early November, after the Federal Reserve (Fed) signaled a stop to rate hikes. 

The decline accelerated in the past week, after the Fed projected a steeper pace of rate cuts in 2024.

As a result, the 10-year US government bond yield has fallen below 4% to reach 3.9% as of 15 December.

Less than 2 months ago, the 10-year US government bond yield was still sitting above 5.0%.  

US 10-year government bond yield dec 2023
Source: Tradingview

 

Likewise the 2-year US government bond yield has declined to 4.4% on 15 December from a recent peak of 5.2% in October this year. 

US 2-year government bond yield 15 dec 2023
Source: Tradingview

#2 – Singapore government bond yields have not fallen as much as US bond yields 

The yield on Singapore government bonds with longer maturities has also fallen with the decline in US bond yields.

For example, the closing yield on the 10-year Singapore government bond has declined to 2.76% on 15 December from 2.87% on 8 December.

However, the closing yield on the 6-month Singapore T-bill has remained steady at 3.77% over the past week. 

3-month singapore t-bill 15 dec 2023
Source: MAS

 

Likewise, in the 3-month MAS note auction on 12 December, the cut-off yield was at 4.06%, above the cut-off yield in the previous auction of 4.01%.

Clearly, the yield on Singapore government bonds with shorter maturities have not fallen as much as US government bond yields. 

 

6-month singapore t-bill closing yield 15 dec 2023
Source: MAS

#3 – Smaller issuance size in upcoming auction 

We saw an increase in applications in the previous 6-month T-bill auction on 7 December, as investors rushed to lock-in higher yields.

It might be worth noting that the amount of T-bills to be issued in the auction on 20 December will decline to S$5.6 billion from S$5.9 billion in the previous auction. 

Should demand for the T-bill remain elevated, the smaller issuance size in the upcoming auction may lead to a lower cut-off yield compared to the previous auction. 

What would Beansprout do?

With the Fed projecting that interest rates will be cut in 2024, some investors may be looking to lock in interest rates while they can. 

The good news is that the closing yield on the 6-month Singapore T-bill has remained steady at 3.77% as of 15 December despite the sharp decline in US government bond yields. 

This remains above the best 6-month fixed deposit rate of 3.65%

Hence, we will continue to consider the T-bill as a safe way to earn a higher return on our savings in the short term.

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.

With the holiday season coming up, it might be worth noting that the auction will be held on Wednesday, 20 December, rather than on a Thursday.

This means that we would need to put in our cash applications for the T-bill by 9pm on 19 December (Tue).

The closing date for T-bill applications using CPF-OA differs across the three local banks.

If you are new to investing in the T-bill, check out our comprehensive guide to Singapore T-bills to learn more.

Join our Beansprout Telegram group and Facebook group for the latest insights on Singapore stocks, REITs, bonds and ETFs. 

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