The closing yield on the 6-month Singapore T-bill has remained steady at 3.86% even as US government bond yields hit multi-year highs.
Investors in Singapore T-bills have been disappointed by the fall in yields in recent auctions.
The cut-off yield for the 6-month Singapore T-bill fell to 3.87% on 12 October from 4.07% in the previous auction.
Similarly, the cut-off yield for the 1-year Singapore T-bill fell to 3.7% on 19 October from 3.74% in the previous auction.
This led many investors to wonder if we might see a further decline in the cut-off yield in the upcoming 6-month Singapore T-bill auction (BS23121E) on 26 October.
Let us look at what the latest indicators are telling us on whether it might still be worthwhile applying for 6-month Singapore T-bill.
Will the yield on the 6-month T-bill fall further?
#1 – US bond yields reach multi-year highs
US government bond yields have risen further in recent weeks after Fed officials indicated that interest rates may remain higher for longer to bring down inflation.
In addition, US economic data such as retail sales has been stronger than expected, leading to expectations that the Fed may not be able to lower interest rates anytime soon.
In fact, the US 10-year government bond yield briefly reached 5% this week, representing the first time it has hit the psychologically important level since 2007.
Like we have seen in previous weeks, the 10-year government bond yield has risen more sharply than the 1-year government bond yield.
The 1-year US government bond yield has been steady at about 5.4% since July this year. Recent concerns about interest rates remaining higher for longer have also not brought the yield above its recent peak of 5.5%.
#2 – Singapore government bond yields have not gone up as much
Despite the sharp increase in US government bond yields, Singapore government bond yields has not gone up as much.
The closing yield on the 10-year Singapore government bond has risen slightly to 3.40% on 20 October from 3.32% on 13 October 2023.
However, the closing yield on the 6-month Singapore government bond has stayed at 3.86% over the past week.
Some investors may also be tracking the 3-month MAS note closely to get an indication of shorter maturity Singapore government bonds.
The cut-off yield on the 3-month MAS note was at 4.11% on 17 October, just slightly above the cut-off yield of 4.07% on 3 October.
#3 – Potential loss of more CPF interest
With more investors interested in applying for the T-bill using their CPF savings, we have been getting queries about where there might be a loss of additional CPF interest in the upcoming T-bill auction.
You may have noticed earlier that the auction date will be on 26 October 2023, and the maturity date will be on 30 April 2024.
Since 30 April 2024 is the last day of the month, this may lead to a potential loss of 8 months of CPF OA interest assuming that the it will take at least one day to transfer funds from your CPF-IA back to your CPF-OA.
To find out if it might still be worthwhile to invest your CPF funds into the T-bill with the loss of additional interest, check out our CPF T-bill calculator.
What would Beansprout do?
The closing yield on the 6-month Singapore government bond yield has been steady at about 3.86% over the past week despite the surge in US bond yields.
This would also be quite similar to the cut-off yield in the previous 6-month T-bill auction on 12 October.
However, it is important to note that the cut-off yield in the T-bill auction will still depend on the bids that come through.
For example, we noted that there might be loss of additional CPF interest in the upcoming 6-month T-bill auction on 26 October.
This may lead to fewer applications by CPF investors like we have seen in previous auctions where there may also be a loss of CPF interest, and subsequently a higher cut-off yield.
With many moving parts, investors who are investing using cash and looking to make competitive bids for the T-bill auction can refer to the latest fixed deposit rate in considering our bids.
Recently, the best 6-month fixed deposit rate has been raised to 3.60% per annum, while there are also savings accounts that allow us to earn an interest rate of 3.50% and above without jumping through hoops.
The auction will be held on 26 Oct (Thur), which means that we would need to put in our cash applications by 9pm on 25 Oct (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 9pm on 25 Oct (Wed). Read our step-by-step guide to applying via DBS.
- Application for T-bills online using CPF OA via OCBC close at 9pm on 25 Oct (Wed). Read our step-by-step guide to applying via OCBC
- Applications for T-bills online using CPF OA via UOB close at 9pm on 24 Oct (Tue) Read our step-by-step guide to applying via UOB.
Use our CPF-Tbill calculator to find out how much more interest you can potentially earn by investing in the Singapore T-bill using your CPF OA savings.
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