Will the T-bill yield rise further in the auction on 8 June?

What happened?

Many investors appear excited about the Singapore T-bill once again after the cut-off yield increased in the previous T-bill auction on 25^th May 2023.

This led many to wonder if we will continue to see a higher cut-off yield in the upcoming Singapore 6-month T-bill auction (BS23111W) on 8^th June 2023. 

Let us take a look to see if there will be a further increase in the yield on the 6-month T-bill.

Will the T-bill yield rise further?

#1 – US bond yields continue to increase

US government bond yields have risen significantly over the past two months with continued strength in economic data. 

The US debt ceiling agreement has helped to ease concerns about a catastrophic default. At the same time, bond yields have moved up in anticipation of a significant increase in debt issuance by the US government in the near term. 

The latest employment data also suggests that the US labour market remains very strong, with significantly more jobs created compared to market expectations.

This has led to an increase in the 6-month US government bond yield to close to 5.5% from 5.3% just two weeks ago. 

The strength in the US economy has also led investors to tone down expectations of a Fed rate cut this year.

In fact, investors are pricing in a more than 50% probability that the Fed may raise its benchmark rate by another 0.25% in July. The further rate hike was seen as an event that was unlikely to happen just one month ago. 

#2 – Yield on 3-month MAS note has also gone up

With the increase in the US government bond yields, we have also seen an increase in the cut-off yield in the recent MAS 3-month note auction.

The cut-off yield rose to 4.21% p.a. in the auction on 30^th May, representing a significant rise from the cut-off yield of 4.08% just a week ago.

In fact, the cut-off yield on the MAS 3-month note of 4.21% is the highest level since January this year. 

#3 – 6-month T-bill closing yield at 3.81% p.a. on 1 June 2023

Looking at the market closing yield of the 6-month T-bill, it does not appear to have moved up as much in the past week. 

The closing yield was at 3.81% as at 1 June 2023, relatively unchanged from the closing yield of 3.83% just a week ago.

Likewise, the closing yield on the 1-year T-bill has been stable at 3.61%.

What would Beansprout do?

The cut-off yield on the 6-month T-bill of 3.85% in the previous auction has caused many investors to be excited about the T-bill once again. 

This is especially so when compared to fixed deposits, where the best 6-month fixed deposit rate has come down to 3.55%. 

A spike in US government bond yields and a rise in the cut-off yield in the recent 3-month MAS note auction has led to further optimism about the yield in the upcoming 6-month T-bill auction. 

As always, the outcome of the T-bill auction will depend eventually on the bids submitted. Also, the amount of T-bill auctioned this time will be slightly lower at $5.2 billion, compared to $5.3 billion in the previous auction. 

One way to make sure we do not end up buying the T-bill at 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 8 June (Thur), which means that we would need to put in our cash applications by 7 June (Wed). 

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

• Applications for T-bills online using CPF OA via DBS close at 12 noon on 6 June. Read our step-by-step guide to applying via DBS. 
• Application for T-bills online using CPF OA via OCBC close at 9pm on 7 June. Read our step-by-step guide to applying via OCBC
• Applications for T-bills online using CPF OA via UOB close at 9pm on 6 June. Read our step-by-step guide to applying via UOB. 

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