6-month T-bill interest rate surged to 3.77% per annum! Best deal in town?

What happened?

Every two weeks, there will be a buzz in the Beansprout community as we await the auction result of the latest Singapore Treasury Bill (T-bill) auction.

The sense of anticipation was especially noticeable today (13 October 2022), as there were auctions for both for 6-month and 12-month T-bills. 

Singapore 6-month T-bill allotment result – 13 October 2022

In the latest auction on 13 October, the cut-off yield on the 6-month T-bill auction surged to 3.77% from 3.32% at the auction on 29 September. 

What we noticed is that the total amount applied did not change significantly from the previous auction. 

The total amount applied was S$10.2 billion, an increase of about S$500 million compared to the previous auction. 

However, the amount of 6-month T-bill put up for auction this time round was also higher at S$4.5 billion, S$500 million higher than the previous auction. 

Interestingly, the amount of non-competitive bids fell from S$1.1 billion from S$1.2 billion in the previous auction. 

This was despite the greater interest that we’ve seen from retail investors for the T-bill in recent weeks. 

That said, S$1.1 billion is still a huge number. For comparison, the total amount of Singapore Savings Bonds offered in the upcoming November issuance is just at S$900 million. 

Singapore 1-year T-bill allotment result – 13 October 2022

There were also many in the Beansprout community were looking out for the 1-year T-bill auction, especially since the last of such auction took place in July this year. 

The cut-off yield on the 1-year T-bill auction was at 3.72%, slightly lower than the cut-off yield of the 6-month T-bill.

Interestingly, there was not as much non-competitive applications for the 1-year T-bill compared to the 6-month T-bill.

The total amount of non-competitive bids for the 1-year T-bill was at S$441 million, lower than the S$1.1 billion of non-competitive bids for the 6-month T-bill.

Again, this is already significantly higher than the S$90 million of non-competitive bids we saw in the 1-year T-bill auction in July. 

Why is the interest rate on the 6-month T-bill higher than the 1-year T-bill?

What some people were surprised by, was that the cut-off yield of the 6-month T-bill of 3.77% was higher than the cut-off yield of the 1-year T-bill of 3.72%. 

After all, investors generally expect to be compensated by getting a higher interest rate for committing their money for a longer period of time. 

In recent months, we have seen an inversion of the yield curve in the US. This means that you are paid more to lend to the US government on shorter tenure than to lend them on a longer tenure. The most common measure of this inversion is between the 2-year Treasury Bond and the 10-year Treasury Bond. 

Historically, an inverted yield curve is seen as a sign of a potential recession. This could be a reflection of investors’ expectations the US Federal Reserve would cut its policy rates in the future to help boost growth. 

So, should we be worried that the yield on the 6-month T-bill is higher than the 1-year T-bill? 

As we shared in our previous article, the yields on the 6-month T-bill and 1-year T-bill tend to move in tandem with each other. 

And as the name ‘auction’ suggests, the cut-off yield on the T-bill would depend on the demand and supply of each T-bill at the auction. 

With the slight difference in interest rate between the 6-month and 1-year T-bill if just 0.05 percentage points, we would not read too much into whether this signals a yield curve inversion and if it’s a sign of an upcoming recession. 

What would Beansprout do?

It should be a relief to many retail investors that they are still able to get full allotment for their non-competitive bids for the T-bills. 

This is despite more Singapore investors taking notice of the 6-month T-bill as an option to park their spare cash. 

If you missed out on the latest T-bill auction, the next auction for the Singapore 6-month T-bill will happen on 27 October 2022.

With the high interest rates on the T-bill, you can read our analysis on whether you should apply for the T-bill using your CPF here.

Also, while the interest rate reached 3.77% per annum in the latest auction, it does not mean that the yield for the next auction will remain as high. 

Unfortunately, there will not be any other 1-year T-bill auction for the rest of the year.

If you are looking to lock-in interest rates for the next 12 months, then you might have to consider the Singapore Savings Bond (SSB) or fixed deposit accounts. Both of these are offering 1-year interest rates of close to 3.0% currently. 

Join our Telegram group if you have any questions about the Singapore Treasury-bill, SGS Bond, or SSB!