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Will the T-bill yield rise above 4.28% as interest rates rise?

03 Jan 2023

Global interest rates have risen in the past two weeks with greater inflation concerns. However, this may not translate into a significantly higher yield for the Singapore 6-month T-bill.

T-bill auction 5 Jan 2023

What happened?

The Singapore T-bill attracted a lot of interest amongst investors in 2022, and was voted by the Beansprout community as the top 5 financial news of the year. 

As we enter the new year, many investors have renewed hopes that the yield on the T-bill may reach new highs, after hitting 4.4% per annum in December. 

The first 6-month T-bill auction of 2023 will be held on 5 January 2023. 

If you were switched off from the financial markets during the December holidays and are not sure what to put in as a competitive bid for the upcoming auction, let’s take a look at how interest rates have moved from the last auction on 21 December, when the cut-off yield was at 4.28% p.a.

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Source: MAS

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

#1 – US bond yields have risen slightly

Bond yields have gone up in the last two weeks after the previous auction on 21 December. 

This might be because China’s faster than expected re-opening has led to concerns about rising inflation once again. 

The yield on 1-year US government bond reached 4.73% on 3 January 2023, above the level it was at in mid-December when it was at about 4.6%.

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Source: Tradingview

#2 – Singapore government bond yields have gone up too

Singapore government bond yields have gone up in the past two weeks too. 

The yield on the BS22125T 6-month T-bill which had a cut-off yield of 4.28% has increased to 4.36% as of 30 Dec 2022.

This represents a rise of about 0.08%, mirroring the increase in the yield of the 1-year US government bond. 

Table

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Source: MAS

 

In the meantime, the cut-off yield on the MAS 12-week bill has also gone up to 4.48% in the auction on 28 December, compared to 4.38% in the auction on 13 December.

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Source: MAS

#3 – Individual interest might rise again

Earlier, we explained how the T-bill auction is conducted and how the cut-off yield is determined by the competitive bids submitted.

As a recap, there are a few factors that could affect the cut-off yield, including:

  • The amount of bids that are made
  • The yields that investors are putting in their competitive bids

At the last auction on 21 December the total amount of bids for the T-bill rose to S$11.8 billion from $9.3 billion in the auction on 8 December. 

Investors who applied for the T-bill also demanded a higher yield. The median yield for competitive bids rose to 4.0% p.a. from 3.85% in the previous auction. 

It is hard to predict the amount of competitive bids that will be put in this time. 

Investors might continue to find the 4.28% yield in the previous auction appealing. 

There might also be more interest in the T-bill as Singaporeans return from their December holidays. 

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What would Beansprout do?

From the charts above, it would seem that short-term yields have risen from where they were in the previous auction on 21 December. 

However, the eventual cut-off yield for the upcoming T-bill auction will depend on competitive bids submitted. 

Some investors may still choose to refer to fixed deposit rates to determine the yield that they bid for the T-bill. 

We checked the latest fixed deposit rates and the best fixed deposit rates have stayed pretty much the same over the past 2 weeks. 

CIMB is still offering the best 6-month fixed deposit interest rate of 3.95% and 12-month fixed deposit interest rate is 4.15% with a minimum deposit of $10,000. 

If you’ve got your mind set on the T-bill,  find out how to apply with our ultimate guide to T-bills.

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