Will the T-bill yield rise with a spike in US bond yields?



By Beansprout • 20 May 2023 • 0 min read

The 6-month Singapore government bond yield remains steady at about 3.75% even though US bond yields have spiked.

Singapore 6-month T-bill auction 25 May 2023
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What happened?

US government bond yields have moved up sharply in recent days.

This naturally led many to wonder if we will see a higher cut-off yield in the upcoming Singapore 6-month T-bill auction (BS23110X) on 25th May 2023 as well. 

Let us take a look at what the current indicators are telling us about whether it might be worthwhile to apply for the upcoming 6-month T-bill.

Singapore 6-month T-bill auction 25 May
Source: MAS


Will the T-bill yield rise with higher US bond yields?

#1 – US bond yields have spiked 

US government bond yields have risen significantly in the past week with strong economic data. 

For example, the US labour market continued to be very resilient, defying expectations of a recession. 

US President Joe Biden's confidence that the US debt ceiling will be resolved and easing stress in the US regional banking sector have also led to increased optimism about the US economy. 

The economic strength has led some investors to expect that inflation may continue to be persistent, which will mean that the Fed might not be able to cut interest rates so quickly. 

Looking at the US 6-month government bond yield, it has soared to above 5.3%, exceeding the levels in March before the collapse in Silicon Valley Bank. 

US 6 month government bond yield
Source: Tradingview


#2 – Singapore government bond yields have been relatively stable

Singapore government bond yields have been relatively stable amid the spike in US government bond yields.

For example, the closing yield on the 6-month T-bill on 19 May was at 3.75%. This is not too far from the cut-off yield of 3.78% at the latest 6-month T-bill auction on 11 May.

Likewise, the yield on the 1-year Singapore T-bill has been stable at 3.59% over the past week. 

Singapore 6-month T-bill yield
Source: MAS


#3 – Is it worthwhile to apply for T-bills using CPF OA funds?

With the upcoming T-bill auction happening close to the end of the month, there are naturally concerns about whether there could be loss of two additional months of CPF interest for applications using CPF OA funds.

After all, the issue date for the 6-month T-bill will be on 30th May. The maturity date will be on 28th November 2023. 

What this means is that you will have to instruct the bank to transfer your funds back into your CPF-OA account immediately after the T-bill matures and money is credited back into your CPFIA. 

Based on the experience of some in the Beansprout community who have given the instruction to DBS to transfer back the funds back to CPF-OA on the day of maturity, the funds can be potentially transferred back to the CPF OA within one working day.

This means that there is still a possibility that we will only lose one month of additional CPF interest in the upcoming 6-month T-bill auction if we instruct the bank to transfer the funds back to the CPF-OA account on the day the T-bill matures, and the bank is able to effect the transfer within one working day. 

You might find our T-bill calculator useful in finding out how much more interest you can potentially earn by investing your CPF-OA funds in the upcoming 6-month T-bill auction based on these assumptions. 

What would Beansprout do?

The closing yield on the 6-month T-bill has remained steady at 3.75% p.a. even with a spike in  US government bond yields. 

This is higher than the best 6-month fixed deposit interest rate of 3.5% p.a., especially as banks have been lowering their fixed deposit rates in recent weeks.  

This would mean that it might be worthwhile considering investing in the T-bill rather than putting our money into fixed deposit.

However, the outcome of the T-bill auction will depend on macro-economic developments in the coming days, as well as competitive bids being made. 

One way to make sure we do not end up buying the T-bill at a lower than expected bond yield is to consider putting in a competitive bid in the auction.

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 25 May (Thur), which means that we would need to put in our cash applications by 24 May (Wed). 

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

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