The T-Bill 17 Oct 2023 (BS23120A) auction has concluded with a cut-off yield of 3.87%. It is a significant drop from the previous auction, which yielded 4.07%. Despite the decline, the yield is still competitive compared to recent auctions. What caused this drop? Let’s see the auction summary.
Auction Result
Allotment
| Total Amount Allotted | S$5.4 billion |
| Amount Allotted to Non-Competitive Applications | S$2.2 billion |
| Total Amount Applied | S$14.7 billion |
| % of Competitive Applications at Cut-off Allotted | Approximately 68% |
| % of Non-Competitive Applications Allotted | Approximately 79% |
| Bid-to-Cover Ratio | 2.73 |
Yield and Price
| Cut-off Yield | 3.87% p.a. |
| Cut-off Price | 98.07 |
| Median Yield | 3.66% p.a. |
| Median Price | 98.175 |
| Average Yield | 3.37% p.a. |
| Average Price | 98.32 |
Source: MAS
Yield Dropped
So this T-Bill 17 Oct 2023 (BS23120A) ended up with a much lower yield of 3.87%, a drop from 4.07% in the previous auction. This result may disappoint some investors seeking a yield north of 4%. But to put things into perspective, this yield is still among the highest in recent times. Here we compile the T-bill yield historical chart:
The historical chart above shows that T-bill yields have hovered around the current level since the beginning of this year. In our opinion, 3.87% is still pretty attractive. We can monitor this yield’s movement in the coming auctions to see the trend.
Highest Demand This Year
This auction comes with a small surprise: demand skyrocketed to the highest level we’ve seen in a while. Total applications hit $14.7 billion, wow! For perspective, total applications in the previous auction totaled only $9.3 billion.
The higher demand isn’t a surprise, given the high yield from the previous auction. With T-bill alternatives, such as fixed deposits, yielding only low to mid 3%, there is little incentive to park money in fixed deposits when T-bills yield 4%. This high demand contributes to the lower cut-off yield in this T-Bill 17 Oct 2023 (BS23120A) auction.
We will monitor this demand in upcoming auctions to see whether it reverses again as yields drop.
Non-Competitive Bid Allocation Cap Hit
As mentioned in our previous auction coverage, we were slightly uncomfortable with the rising non-competitive bid amount and would prefer to apply via competitive bids in this auction. Our concern became a reality, and the non-competitive bid allocation cap was hit in this auction. Only 79% of non-competitive applicants were allocated. Non-competitive bids totaled about $2.8 billion, while the maximum allocation was only $2.2 billion.
We will likely continue placing competitive bids in the next auction to maximize our chances of allocation. We will monitor the situation to see if the trend reverses so we can resume using non-competitive bids.
T-Bill Alternatives
What T-bill alternatives can we consider?
Fixed Deposits
The most popular fixed-income investment for retail investors is a fixed deposit. How do fixed deposit rates compare to T-bill interest rates? In short, fixed deposit rates are currently not competitive. Even after the recent bump, the highest rate is only 3.6%, while Singapore local banks offer rates below 3%. For now, it seems we can skip fixed deposits and consider other alternatives.
High-Yield Savings Accounts
With high-yield savings accounts, the effective interest rate is usually much lower than advertised because most of us cannot fulfill the requirements for bonus interest rates. However, if you can meet those criteria, such as crediting salary, spending credit card, buying insurance, etc, high-yield savings accounts can offer very competitive interest rates.
However, unlike T-bills, the interest rate here is floating, meaning it follows prevailing market rates without a lock-in period. If market interest rates drop, these high-yield savings accounts will likely follow suit soon. On the other hand, you get the benefit of liquidity because your money isn’t locked. Therefore, this savings account is better suited for emergency funds.
Cash Management Accounts
Cash management accounts have a different risk profile than T-bills because your principal is not guaranteed. Although the risk is minimal, you can still lose principal. If you are comfortable with this slightly higher risk, cash management accounts can offer competitive interest rates above 4%. You can check the latest cash management account offerings to find the most competitive rates available in the market.
Unless explicitly stated, the interest rate here is also floating. If prevailing market interest rates reverse, these cash management account rates will likely drop quickly.
What Would We Do?
We have used T-bills and high-yield savings accounts to park our short-term cash. We still think the current T-bill yield of 3.87% is competitive and remain interested in using T-bills, at least for now. However, given the high demand in this auction, we’ll likely stick with competitive bids in the upcoming auction to ensure full allocation.
Did you manage to get an allocation in this T-bill auction?
Do you want to apply for the next T-bill auction? If you plan to use CPF, you can use our CPF T-bill calculator to estimate how much more interest you can earn by investing in T-bills.
In addition, we have written a comprehensive guide about Singapore T-bills and how to buy T-bills.
