Will the T-bill yield rise further in the auction on 28 September?

What happened?

The US Federal Reserve signaled earlier this week that interest rates may stay high for a longer period of time.

This led to questions on whether we might see a higher cut-off yield for the upcoming 6-month Singapore T-bill auction (BS23119H) on 28^th September 2023.

In the previous auction on 14^th September, we already saw a slight increase in the cut-off yield on the Singapore 6-month T-bill to 3.73%.

Let us look at what the latest indicators are telling us on whether it might be worthwhile to apply for the upcoming 6-month Singapore T-bill auction. 

Will the yield rise further in the upcoming 6-month Singapore T-bill auction?

#1 – US government bond yields rise further after latest Fed meeting

We have seen a further increase in US government bond yields in the past week after the Federal Reserve indicated in its latest meeting that interest rates may stay higher for longer. 

For example, the 2-year US government bond yield rose to about 5.1%, the highest level since 2007. 

The 10-year US government bond yield saw an even sharper increase to about 4.4%, also the highest level since 2007. 

#2 – 6-month Singapore T-bill closing yield has not increased by much

Despite the spike in US government bond yields, the closing yield on the 6-month Singapore T-bill has risen just slightly to 3.74% as at 22 September 2023.

This is quite similar to the cut-off yield of 3.73% in the previous T-bill auction on 14 September 2023.

Where we have seen a more significant increase is in the closing yield of the 10-year Singapore government bond, which has increased to 3.42% on 22 September from 3.30% from 15 September.  

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 4.06% on 19 September. Once again, this is just a slight increase from the cut-off yield of 4.05% on 12 Sep. 

However, it might be worth noting that the auction happened before the Fed meeting on 20 September, and may not be a reflection of developments in the bond market in recent days. 

#3 – Potential loss of more CPF interest

Recently, there was a question in the Beansprout community on whether there might be a loss of additional CPF interest in the upcoming T-bill auction on 28 September 2023. 

This bright-eyed investor has spotted that the auction date will be on 28 September 2023, and the maturity date will be on 2 April 2024.

Assuming that the deduction for successful applications using CPF-OA funds will be one day after the auction date, this could lead to a potential loss of 8 months of CPF OA interest. 

This would raise the break-even yield required to make it worthwhile for investors to put their CPF OA funds in the T-bill. 

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?

After the latest Fed meeting, we have seen a further increase in US government bond yields.

This has also led to an increase in 10-year Singapore government bond yields. However, the rise in the yield of the 6-month Singapore T-bill has been less significant, with the closing yield at 3.74% on 22 September. 

For investors who are looking to invest in the upcoming 6-month T-bill using CPF OA funds, it might be worth noting the potential loss of 8 months of CPF OA interest. 

In fact, the potentially lower demand from CPF-OA investors could be as important in determining the cut-off yield in the upcoming T-bill auction as movements in US bond yields. 

In addition, we also have a smaller T-bill issuance size of $5.3 billion in the 6-month T-bill auction on 28^th September, compared to the issuance size of $5.5 billion in the previous auction. 

With the 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, an increase from the previous best fixed deposit rate of 3.40%.

The auction will be held on 28 Sep (Thur), which means that we would need to put in our cash applications by 9pm on 27 Sep (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 26 Sep (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 27 Sep (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 26 Sep (Tue) Read our step-by-step guide to applying via UOB. 

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