Will the T-bill yield stay high in the auction on 6 July?

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Bonds

By Beansprout • 01 Jul 2023 • 0 min read

The yield on the Singapore 6-month T-bill has been rising with higher US government bond yields.

T-bill auction 6 July 2023

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Update on 6 July: The cut-off yield of the 6-month T-bill auction on 6 July 2023 was 3.99%. Read our analysis here. 

What happened?

After the 6-month T-bill yield climbed to 3.89% in the previous auction on 22 June 2023, there have been more investors looking at the T-bill once again.

Many have asked if we will continue to see such a high yield in the upcoming Singapore 6-month T-bill auction (BS23113V) on 6 July 2023. 

Let us explore to see if might be worthwhile applying for the upcoming 6-month T-bill. 

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Source: MAS

 

Would the T-bill auction yield stay high?

#1 – US Bond yields continue to move higher

As many in the Beansprout community have noticed, US government bond yields have continued to move higher in recent weeks.

For example, the US 1-year government bond yield has risen to 5.45% on 30 June from 5.3% on 16 June 2023.

This comes after Fed Chairman Jerome Powell reiterated that there might be two further interest rate hikes later this year. 

We also saw very strong US economic data leading to lower expectations that the Fed will be able to cut interest rates anytime soon. 

For example, the latest data showed that the US economy grew at 2% in the first quarter of the year, above the previous estimate of 1.3%. 

The US labour market also continued to be healthy, with reported layoffs below market forecasts. 

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Source: Tradingview

 

#2 – Singapore 6-month T-bill yield remains elevated

With the increase in US government bond yields, the Singapore government bond yield has also stayed at relatively high levels. 

For example, the closing price on the 6-month government bond yield on 28 June was at 3.87%, rising from 3.83% on 21 June. 

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Source: MAS

 

Similarly, the cut-off yield on the 3-month MAS note has inched up slightly to 4.16% on 27th June from 4.13% on 20th June.

This would be quite close to its recent high of 4.21% on 30th May 2023.

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Source: MAS

 

#3 – Will there be more CPF applications?

We saw a fall in demand for the last 6-month T-bill auction on 22 June, with the total amount of applications declining to S$9.9 billion from S$11.5 billion in the auction on 8 June.

This might be because of lower CPF applications with the auction held close to the end of the month, due to concerns about potentially losing two additional months of CPF interest.

Hence, we'll be looking out for whether there will be more applications at the upcoming T-bill auction since it will be held at the start of the month. 

On the other hand, with an upcoming 1-year T-bill auction coming up on 27th July, there could be some investors who might choose to apply for the 1-year T-bill instead.  

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What would Beansprout do?

The closing yield on the Singapore 6-month T-bill has remained fairly high at 3.87% p.a. as US government bond yields continue to climb higher. 

This is higher than the best 6-month fixed deposit interest rate of 3.55% p.a., especially as banks have been lowering their fixed deposit rates in recent weeks. 

For example, UOB and OCBC have cut their 6-month fixed deposit rate to 2.7%, representing the first time that the fixed deposit rate by the two local banks has dipped below 3% this year. 

This would mean that it might be worthwhile considering investing in the T-bill rather than putting our money into fixed deposit.

Once again, we'd like to highlight that the outcome of the T-bill auction will still depend on the applications submitted. 

If you are thinking of applying for the upcoming T-bill, it might be worth noting that we have seen the amount of non-competitive bids getting quite close to allotment limit in the previous auction. 

This means that if the amount of non-competitive bids continue to rose and surpass 40% of the T-bill issuance, investors who put in a non-competitive bids may not be able to get full allocation of their applications. 

One way to not end up with a lower-than-expected bond yield is to consider putting in a competitive bid in the auction.

For CPF applications, we can calculate how much more interest we can potentially earn by investing our CPF funds into the T-bill at different interest rates using our T-bill calculator

The auction will be held on 6 July (Thur), which means that we would need to put in our cash applications by 5 July (Wed).

The closing date for T-bill applications using CPF-OA differs across the three local banks.

Join the Beansprout Telegram group to get the latest updates on Singapore bonds, stocks, ETFs and REITs.  

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Make your CPF savings work harder

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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