Will the T-bill yield rise further in the auction on 29 Feb?

What happened?

There’s another 6-month Singapore T-bill auction (BS24104T) that’s coming up on 29 February.

This means that there will be three 6-month T-bill auctions this month (also thanks to the leap year).

After the cut-off yield rebounded in the previous auction, many T-bill investors are hoping that the yield will rise further.

Let us look at the latest indicators to find out if it we might see a bounce in the cut-off yield in the upcoming 6-month T-bill auction.

Will the yield on the Singapore T-bill rise further?

#1 – US bond yields have risen further

US government bond yields have rebounded sharply in recent weeks.

This came about after hotter-than-estimated US inflation led investors to moderate expectations that the Fed will cut rates soon.

According to the CME Fedwatch tool, investors are now largely expecting that the first rate cut will only happen in June this year. 

The 10-year US government bond yield has risen to 4.25% from 3.9% at the end of January.

The 2-year US government bond yield has risen more sharply to 4.70% from 4.20% at the end of January.

#2 – Singapore government bond yields more mixed 

The yields on longer maturity Singapore government bonds have also rebounded with the higher US government bond yields.

The closing yield on the 10-year Singapore government bond increased to 3.16% as of 23 February from 3.07% a week ago.

However, we have not seen such a significant increase in shorter maturity Singapore government bond yields.

For example, the closing yield on the 6-month Singapore T-bill was at 3.61% on 23 February, lower than the cut-off yield of 3.66% in the previous T-bill auction on 15 February. 

Likewise, the cut-off yield on the 3-month MAS note was at 3.93% in the auction on 20 February, similar to the previous two auctions. 

#3 – Smaller issuance size compared to previous auction

One of the reasons for the higher cut-off yield in the previous auction was due to the larger issuance size.

Together with a decline in demand and higher average yields submitted, the cut-off yield staged a rebound.

However, it is worth noting that the amount of 6-month T-bills to be issued will fall slightly to S$6.4 billion in the upcoming auction after reaching a high of S$6.6 billion. 

This may mean that if the demand for the T-bill stays high, there may be downward pressure on the cut-off yield in the auction. 

#4 – How much potential loss in CPF interest?

Someone in the Beansprout Telegram community asked if investors subscribing for the upcoming 6-month Singapore T-bill may lose two additional months of CPF interest.

In case you are not aware, investors in the T-bill using their CPF savings may lose one or two additional months of CPF interest as the CPF interest payment is computed based on the lowest balance for the month, rather than the average balance of the month.  

In the upcoming auction on 29 February, the T-bill will be issued on 5 March, and the T-bill will mature on 3 September 2024. 

However, the fund deduction from CPF typically took place one working day after the T-bill auction date for applications using DBS in the past. 

This would mean that if you are successful in your T-bill auction, you may only see a lower CPF account balance from 1 March 2024.

Hence, it might still be possible that we will lose only seven months of CPF interest in total from March to September when applying for the upcoming 6-month T-bill. 

Check out our CPF T-bill calculator to find out how much more interest you can potentially earn by investing in the T-bill.

However, if you do not want to take the risk of losing two additional months of CPF interest, then it might be worthwhile waiting for the next T-bill auction.

What would Beansprout do?

While US government bond yields have bounced further, shorter-maturity Singapore government bond yields have remained relatively stable. 

In addition, the slightly smaller issuance size for the upcoming 6-month T-bill auction might also mean that we are unlikely to see a sharp bounce in the cut-off yield. 

One of the ways we can ensure that we do not end buying the T-bill with a lower than expected yield is to put in a competitive bid. 

As a recap, we will only invest in the T-bill if the yield is above a certain level when we submit a competitive bid. 

As someone in the Beansprout community suggested, we can reference to the best fixed deposit rate if we are applying to the T-bill using cash. 

With banks cutting their rates in recent weeks, the best 6-month fixed deposit rate is currently at 3.50%. 

To find out how the yield on the T-bill compare with other assets such as FD and SSB, check out our Compare Yield Tool. 

The auction will be held on Thursday, 29 February 2024. This means that we would need to put in our cash applications for the T-bill by 9pm on 28 February (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 28 February (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 February (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 February (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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