Will the T-bill yield fall further in the auction on 23 May?

What happened?

There was a question in the Beansprout community today about what to expect for the upcoming T-bill auction. 

Many investors are probably wondering what the yield for the 6-month Singapore T-bill (BS24110T) auction on 23rd May will be. 

This is especially so after the yield on the 6-month T-bill has fallen for 3 consecutive auctions to reach 3.70% in the latest auction on 9th May. 

At the same time, we have seen interest rates staying volatile after the recent US consumer price index data. 

In this post, I will look at the latest indicators to find out if it might be worthwhile applying for the T-bill. 

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Will the T-bill yield fall further in the auction on 23 May?

#1 – US government bond yields have fallen 

Firstly, US government bond yields have fallen in recent weeks. 

In particular, the weaker than expected US inflation data in April has revived investor hopes that the Fed will cutting interest rates in the coming months.

As a result, the 10-year US government bond yield has declined to about 4.4% from 4.7% at the start of the month. 

The US 2-year government bond yield has fallen by a smaller extent to 4.8% from 5.0% at the start of the month.

#2 – Singapore government bond yields have fallen too

The yield on Singapore government bonds has declined over the past week with the fall in US government bond yields.

The closing yield on the 10-year Singapore government bond has fallen to 3.19% on 16 May from 3.32% on 9 May 2024. 

However, the closing yield on the 6-month Singapore T-bill has remained steady at 3.70%, unchanged from 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 14th May, slightly lower than the auction on 7th May and 30th April.

#3 – Larger issuance size in upcoming auction

I also noticed that the amount of T-bills issued in the upcoming auction will be increased to S$7.0 billion.

This would represent an increase from the issuance size of S$6.8 billion in the previous auction, and represent the largest amount of 6-month T-bills on auction.

In the previous auction on 9th May, we saw that demand for the 6-month Singapore T-bill rose to reach an all-time high of S$16.3 billion. 

If demand for the T-bill continues to increase, the larger amount of T-bills issued may then help to support the cut-off yield in the auction.

What would Beansprout do?

While the closing yield on the 6-month Singapore T-bill has remained steady at 3.70%, there are several factors that may cause the yield in the upcoming auction to decline. 

Firstly, a decline in US government bond yields has also led to a fall in Singapore government bond yields, particularly for bonds with longer maturities. 

Next, strong demand for the T-bill may continue to put downward pressure on the yield on the T-bill, even as the issuance size is increased. 

However, 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. 

This is because the closing yield on the Singapore T-bill remains significantly above the best 6-month fixed deposit rate of 3.35% p.a.

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. 

If you are worried that the decline in US government bond yields may cause the cut-off yield to fall sharply, it might be worth considering putting in a competitive bid. 

When we submit a competitive bid, we will only invest in the T-bill if the yield is above a certain level.  To find out how to make a competitive T-bill bid, check out our guide here.

The 6-month Singapore auction will be held on Thursday, 23 May 2024. 

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However, as Wednesday, 22 May 2024 is a public holiday in Singapore, we will need to submit both our cash and CPF applications earlier than usual.

As cash applications for the T-bill close one business day before the auction date, we would need to put in our cash applications for the T-bill by 9pm on 21 May (Tuesday).

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 21 May (Tue). Read our step-by-step guide to applying via DBS. 
• Application for T-bills online using CPF OA via OCBC close at 9pm on 21 May (Tue). Read our step-by-step guide to applying via OCBC
• Applications for T-bills online using CPF OA via UOB close at 9pm on 20 May (Mon) 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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