Less worthwhile to apply for 6-month T-bill auction on 26 April using CPF?
25 Apr 2023
Many investors are watching the upcoming 6-month T-bill auction (BS23108A) on 26 April closely, after the cut-off yield fell in recent auctions.
Also, fixed deposit rates have been coming down in recent weeks, leaving us with fewer options to consider to earn a higher interest rate on our cash.
Let us take a look at the what current indicators are telling us about whether it might still be worthwhile to apply for the upcoming 6-month T-bill.
Is it worthwhile to apply for the upcoming 6-month T-bill auction?
US bond yields continue to be volatile
US bond yields have remained volatile in recent weeks, even as there has been relatively calm in the stock markets.
There has effectively been a tug of war between signs of inflation starting to ease off, as well as indicators that point to continued strong business activity.
For example, the US headline inflation moderated to 5.0% in March, representing the slowest pace of increase since May 2021.
However, US job growth continued to be strong, resulting in a decline in unemployment rate to 3.5%, and driving expectation of a potential further Fed rate hike.
As a result, the US 6-month government bond yield has increased to above 5.0% from 4.8% at the start of April.
Likewise, the 1-year US government bond yield has increased to about 4.75% from 4.5% at the start of the month.
Singapore 6-month T-bill has been stable at about 3.74%
The Singapore government bond yield has been relatively stable compared to the US government bond yield.
For example, the closing price of the 6-month Singapore government bond yield has been hovering at about 3.74% over the past week.
This is quite close to the cut-off yield of the 6-month T-bill auction on 13 April.
It would seem like the Monetary Authority of Singapore’s (MAS) recent decision to keep its monetary policy unchanged has not impacted bond yields in Singapore by much.
Potential additional CPF interest loss in upcoming auction
We shared earlier that one of the factors to consider is whether there might be additional loss of CPF interest when deciding whether to use our CPF funds to apply for the T-bill.
This will raise the break-even yield required, and reduce the potential gain from subscribing to the T-bill using our CPF funds.
The upcoming 6-month T-bill auction on 26 April might be one of the auctions where we will lose two additional months of CPF interest due to the dates of the issuance.
The auction date is only 26th April, which means that the funds for successful applications might be transferred out of your CPF account on 27th April, one day after the auction date.
With a maturity date on 31 October, it is likely to be November by the time you are able to transfer the funds back to your CPF account from your CPFIA, even if you provide an instruction immediately to the bank to effect the transfer right after the T-bill matures.
This means you would potentially lose 8 months of CPF interest by investing in the upcoming 6-month T-bill.
As an illustrative calculation, if we assume that the cut-off yield stays at 3.75%, an investment of S$10k into the 6-month T-bill using our CPF OA funds will provide us with an additional interest of S$13.60.
Using the same assumptions, an investment of S$100k into the 6-month T-bill using our CPF OA funds will provide us with an additional interest of S$196.50.
What would Beansprout do?
The 6-month Singapore government bond yield has been relatively stable at about 3.74% in the past week.
However, the upcoming 6-month T-bill appears to be less attractive for CPF applications, with the potential to lose eight months of CPF interest by applying for the T-bill using CPF funds.
If you have some spare cash and deciding between a fixed deposit or the upcoming 6-month T-bill, the good news is that we were able to find 6-month fixed deposit rates of up to 3.9%. However, a minimum deposit of $20,000 is required to earn the higher fixed deposit rate.
You can also check out our guide to best cash management accounts in Singapore.
The auction will be held on 26 April (Wed), which means that we would need to put in our cash applications by 25 April (Tue).
Applications for T-bills online using CPF OA via OCBC close at 9pm on 25 April. Find out how you can apply for T-Bills online using CPF OA via OCBC.
Check out our Optimiser tool to find out how to make your spare cash work harder. Join Beansprout's Telegram group to get the latest updates on T-bills and simple financial guidance.
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