Will the T-bill yield fall with declining US bond yields?

What happened?

There have been many more queries about the Singapore T-bill after the yield on the 6-month T-bill jumped to 3.99% p.a. in the previous auction on 6 July 2023.

Many investors are interested to find out if the yield will remain high for the upcoming Singapore 6-month T-bill auction (BS23114A ) on 20 July 2023.

Let us dive deeper to analyse if the yield on the 6-month Singapore T-bill could decline with a recent fall in U.S. government bond yields.

Would the Singapore 6-month T-bill yield fall?

#1 – U.S. bond yields have been falling

After a steady increase in the previous months, U.S. government yields have started to decline in recent days. 

This is driven by a slowdown in the pace of inflation in the U.S., which has led investors to expect that the Federal Reserve might be about to end its rate hikes soon.

In fact, the consumer price index (CPI) in June only rose 3% compared to the previous year, the lowest level since March 2021. 

This has led to a fall in U.S. government bond yields, with the 1-year government bond yield declining to 5.30% on 14 July from 5.44% on 3 July.  

#2 – Singapore government bond yields have fallen as well

With the decline in U.S. government bond yields, Singapore government bond yields have fallen in recent days as well.

For example, the closing price on the 6-month government bond yield on 13 July was at 3.86%, falling from 3.94% on 6 July. 

Likewise, the closing price on the 1-year government bond yield has also fallen slightly to 3.65% on 13 July from 3.68% on 7 July.

Looking at the 3-month MAS note, the cut-off yield has fallen slightly to 4.16% in the auction on 11 July from 4.18% a week ago. 

#3 – More T-bills to be issued in upcoming auction

While Singapore government bond yields have fallen slightly in the past few days, one of the factors to watch is the higher amount of T-bills offered in the auction on 20^th July 2023.

The amount of T-bills offered in the upcoming auction is S$5.6 billion, an increase from S$5.4 billion in the previous auction.

In the past, we have seen a higher cut-off yield in auctions with a larger total amount of T-bills issued and with demand remaining relatively unchanged.  

This is because of the way the T-bill auction is conducted, where MAS will allocate to the lowest yielding competitive bids until the whole issuance size is taken to determine the cut-off yield. 

In fact, the issuance size in the upcoming 6-month T-bill auction will be the highest in recent years. 

What would Beansprout do?

The cooling of inflation has led to a fall in U.S. government bond yields. Likewise, Singapore government bond yields have also declined slightly in recent days. 

On the other hand, the larger amount of T-bills issued could help to support the cut-off yield in the upcoming auction on 20th July 2023. 

One thing is clear - the latest closing yield on the 6-month government bond yield remains significantly higher than the best 6-month fixed-deposit rate of 3.50% p.a.

One important thing to note is that we have seen non-competitive bids not receiving full allocation in the previous auction on 6 July 2023. 

If you have been making non-competitive bids, it might be worthwhile considering a competitive bid, where you can specify the yield you are willing to accept and will only invest in the T-bill if the cut-off yield is above this level. 

Also, there will be an upcoming 1-year T-bill auction on 27 July 2023. Find out how we’d decide between the 6-month T-bill and 1-year T-bill here. 

For CPF applications, we can calculate how much more interest we can potentially earn by investing our CPF funds into the T-bill at different interest rates using our T-bill calculator. 

The auction will be held on 20 July (Thur), which means that we would need to put in our cash applications by 9pm on 19 July (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 12 noon on 18 July. Read our step-by-step guide to applying via DBS. 
• Application for T-bills online using CPF OA via OCBC close at 9pm on 19 July. Read our step-by-step guide to applying via OCBC
• Applications for T-bills online using CPF OA via UOB close at 9pm on 18 July. Read our step-by-step guide to applying via UOB. 

Join the Beansprout Telegram group to get the latest updates on Singapore bonds, stocks, ETFs and REITs.