The cut-off yield for the latest T-bill BS24101Z auction dropped to 3.7%. Most investors will likely be disappointed by this result because the yield is lower than the 3.74% from the previous auction. What could be the cause of the decline?
Auction Summary
Here is the summary of the auction result:
One thing to note is that the total amount offered jumped from $6.1 billion in the previous auction to $6.4 billion in this T-bill BS24101Z auction. That is a $300 million additional allocation!
Yield Declined
Despite the increase in the offering amount, we still saw a decline in the cut-off yield. This T-bill BS24101Z auction concluded with a yield of 3.7%. Despite the drop, the 3.7% yield remains within the range we saw throughout 2023.
The T-bill yields have been relatively stable since last year. The current level of 3.7% remains one of the highest in recent years. Overall, the auction result is well within our expectations.
Demand Jumped
Demand for the T-bill BS24101Z auction jumped significantly from $12.8 billion in the previous auction to $13.6 billion. The application amount jumped by $800 million, wow! Even though the total amount offered rose by $300 million, extraordinary demand outpaced the higher allocation. This could be a main reason for the lower yield in this auction.
Non-Competitive Bids
Because of the higher demand, we also saw a jump in non-competitive bids totaling $3 billion. Unfortunately, this is much higher than the $2.6 billion allocation limit for non-competitive bidders. As a result, we distributed the available allocations pro rata to eligible non-competitive bidders.
Did you get your desired allocation in this auction?
Given the trend of high non-competitive bid amounts in recent auctions, we will continue to use competitive bids to secure our full allocation in upcoming auctions.
Some Alternatives
We think the current T-bill yield of 3.7% is still quite competitive compared to alternatives. The most popular alternative is fixed deposits. Unfortunately, at the time of writing, fixed deposit rates in Singapore offer only up to 3.5%. Alternatively, you may consider institutional fixed deposits offered by some robo-advisory platforms, such as Syfe and StashAway. Syfe Cash+ Guaranteed and StashAway Simple Guaranteed offer a slightly higher interest rate of 3.8% for a three-month lock-in.
Another popular option is parking your cash into a cash management account, which may offer a higher return but with some drawbacks. First, your principal is not insured and guaranteed. Second, these accounts’ interest rates are floating, meaning they will track the prevailing interest rates closely. Should interest rates start to decline, these accounts will also lower the rates relatively quickly as there is no locking period. Cash management accounts can be an option if you can accept these additional risks.
What Would We Do?
We continue to use T-bills to park a portion of our short/medium-term allocation. With the expectation that the interest rate may reverse this year, we have migrated some of our short/medium-term allocations into Singapore Savings Bonds (SSBs) to lock in the higher rates for the next ten years. SSBs let us redeem monthly without penalty while still earning accrued interest.
So, will you be applying for the next T-bill auction? If so, you may follow our guide on how to buy T-bills.
If you plan to apply using CPF, you can estimate the additional interest you may earn with our CPF T-bill calculator.
