The latest T-bill 8 Jun 2023 (BS23111W) auction has concluded, and the cut-off yield was 3.84%. This is roughly flat from the previous auction, which yielded 3.85%. Here is the summary of the auction result:
T-Bill Demand Dropped
After a red-hot T-bill demand in the previous auction, it was muted this time. The total amount applied was ‘only’ $11.5 billion. The past two auctions saw more than $12 billion in application demand.
One of the Highest Non-Competitive Bids
Although the demand was lower, we saw one of the highest total non-competitive bids of $1.9 billion. The last time we saw a higher number was around the end of 2022.
With the last auction yielding a relatively high cut-off yield, most investors might be more comfortable placing non-competitive bids this month because the alternative’s interest rate from fixed deposit has steadily declined in recent months. The difference in the interest rate between T-bill and fixed deposits is so big that a non-competitive bid would likely still see a much higher yield anyway.
Concerning non-competitive bids, one thing to note is that the auction only allocates 40% of the total allotment size to non-competitive bids. Because the total allotment amount was $5.2 billion, only $2.08 billion was allocated to non-competitive bidders (40% of $5.2 billion).
The total non-competitive bid applications in this auction were $1.9 billion. This was still below the $2.08 billion limit, though getting close. All non-competitive bidders still received the full allocation. However, if the application exceeds the 40% allotment amount, non-competitive bidders will be allotted pro-rated; no full allocation anymore.
We will see if this trend of increasing non-competitive bids continues. Investors may need to consider switching to competitive bids to receive a higher allocation.
Should We Invest in T-Bills? Better than Fixed Deposits?
The closest alternative to T-bills is fixed deposits. If you have been following us, you should know that fixed deposit rates in Singapore have been in free fall. Our local banks offer fixed deposit rates of around 2.9-3.0%.
Whew… That’s not attractive, considering the T-bill yielded 3.85% in the previous auction. This T-bill 8 Jun 2023 (BS23111W) auction again confirmed that T-bills are much more competitive than fixed deposit rates.
Other alternatives, such as cash management and high-yield savings accounts, are viable options for parking short-term cash. They currently yield close to T-bills but without locking up your money. However, unlike T-bills, cash management accounts do not guarantee your principal. There is a small risk of loss on your initial principal. As for high-yield savings accounts, your principal is guaranteed (insured up to $75,000 by SDIC), but you must go through many ‘hoops’ to earn higher interest rates.
T-bills are still an easy, risk-free choice for most investors who are okay with locking their cash for six months.
So, will you be applying for the next T-bill auction? If you are interested, you can follow our step-by-step guide on how to buy T-Bills.
