Here’s what to expect for the T-bill auction on 29 Aug

What happened

The next 6-month Singapore T-bill auction (BS24117F) will be coming up on 29 August 2024.

I have seen some discussion in the Beansprout community on whether Singapore T-bill yield will decline further, after the cut-off yield for the previous 6-month T-bill dived to 3.34%.

More recently, there is also growing expectation of a rate cut by the US Federal Reserve in September. 

Let us look at the latest indicators to find out if it might still be worthwhile applying for the T-bill. 

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Will the T-bill yield fall further in the auction on 29 August?

#1 – US bond yields have fallen to 1-year low

US government bond yields have dived in recent weeks, as easing inflation has led to increasing confidence amongst investors that the US Federal Reserve will start to cut interest rates in September. 

In fact, investors are now expecting the Fed to cut interest rates by 1.0% (or 100 basis points) by the end of 2024, according to the CME Fedwatch Tool. 

As a result, the US 10-year government bond yield has fallen to a low of about 3.8% from a recent high of above 4.45% at the start of July, and is hovering near its low since the middle of last year. 

Likewise, the US 1-year government bond yield has fallen to about 4.4% from about 4.9% in late August, and is near its lowest level since the collapse of Silicon Valley Bank in early 2023. 

#2 – Singapore government bond yields have fallen too 

With the fall in US government bond yields, Singapore government bond yields have fallen sharply too. 

The Singapore 10-year government bond yield has declined to 2.74% from a recent high of 3.1% in the middle of July. 

Likewise, the closing yield on the 6-month T-bill has stayed at 3.34% on 23 August, which is the cut-off yield in the previous T-bill auction on 15 August. 

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 3.60% in the auction on 20^th August, close to the cut-off yield in the previous two auctions.

#3 – Potential loss of additional month of CPF interest 

You may have noticed earlier that the auction date will be on 29 August 2024, and the maturity date will be on 4 March 2024.

Since the deduction from CPF-OA accounts typically happen 1-2 days after the auction date, this may lead to a potential loss of 8 months of CPF OA interest from August 2024 to March 2025.

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? 

Singapore T-bill yields and US government bond yields have fallen sharply in recent weeks as investors gained confidence of interest rates being cut in September. 

As such, the closing yield on the 6-month Singapore T-bill has stayed at 3.34% as of 23 August 2024, similar to the cut-off yield in the previous auction. 

For cash investors, the closing yield on 6-month Singapore T-bill his now just slightly above best 6-month fixed deposit rate of 3.25% p.a. 

To find out the where to park your cash to earn a higher yield, check out our comparison of T-bill vs SSB vs fixed deposit (August 2024).

For CPF investors, it is important to note the potential loss of additional CPF interest in the upcoming 6-month T-bill auction on 29 August. 

It is also worth noting that the cut-off yield for the T-bill auction will eventually depend on the applications that are submitted. 

The amount of applications may fall with the lower yield in recent auctions, as well as the potential loss of additional CPF interest in the upcoming auction. 

At the same time, global bond yields remain volatile.

With the volatility, we can also consider making a competitive bid for the T-bill to make sure that we do not end up with a lower than expected yield.

The 6-month Singapore auction will be held on Thursday, 29 Aug 2024.  We would need to put in our cash applications for the T-bill by 9pm on 28 Aug (Wed).

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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 28 Aug (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 28 Aug (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 27 Aug (Tue) 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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