Just ‘T-Bill and Chill’: Is It a Good Idea?

‘T-bill and chill’ refers to investing in treasury bills and then doing nothing (or chill) while reaping the steady interest payout from these T-bills. With Singapore T-bills yielding close to 4% in recent auctions, should we just ‘T-bill and chill’? It is an almost risk-free investment with guaranteed principal and interest payouts. The yield is also very competitive. What else do we want? Let’s consider its pros and cons to see if ‘T-bill and chill’ suits you.


The Good

The yield on T-bills has hovered close to 4%, a level that is among the highest in recent years.

T-bills historical chart end may 2024
6-month T-bills historical yield chart. Source: Singapore T-bills interest rates

T-bill is a short-term Singapore government bond backed by the credit of the Singapore government. This is as risk-free as you can get in the market. With such a relatively high yield, T-bill is a competitive option for investors seeking to preserve capital.

And here are the key features that we think investors should know before doing ‘T-bill and chill’:

  • T-bill is a short-term bond that will mature in 6 months or one year. 
  • T-bill is suitable for investors seeking to preserve capital.

T-bills can be a good option if the above two points suit you. Otherwise, let’s examine why investing in T-bills and chilling may not serve you.


The Bad

Here are some considerations investors need to be aware of before being too comfortable with investing in T-bills:

Reinvestment Risk

As mentioned above, T-bills are short-term bonds that will mature within a relatively short investing horizon. In the T-bill case, it is either six months or one year. After your T-bill matures, you must reinvest your money into a new T-bill issuance, but at the prevailing interest rate. In other words, you will be exposed to the interest rate movement every six months (or one year). This is what we call reinvestment risk.

The current interest rate is at one of the highest in recent years. You should ask yourself whether the current interest rate level can continue to rise or stay for an extended period. Will you still be able to get the 4% yield when you reinvest your capital in six months?

Potentially Lower Return Over a Long Period

Do you know that, historically, the US stock market returns on average around 6-10% over the long term? Despite the current 4% yield, T-bills still return much lower than the stock market. If you have a long time horizon and a risk appetite for it, investing in the stock market may still be a better option if your objective is to grow your capital. T-bill, on the other hand, is more suitable for investors who have a shorter investing horizon and are looking to preserve their capital.

Interest Rate Is Likely Peaking

The Fed has kept the interest rate steady in their last two meetings. The Fed projects just one more rate hike before pivoting to rate cut towards the latter half of 2024. The market expects that we have reached the peak of the current rate hike cycle, with the interest rate to stay steady until the second half of next year and reversing afterward.

Fed rates expectation May 2024
Source: CME Group

Do you agree with the Fed and the market expectations? If so, it’s bad news because when our T-bills mature in six months, we may not be able to reinvest at the same high interest rate we still enjoy today.


What Would We Do?

We have dedicated allocations for short-term and long-term investing needs. For our long-term portfolio, we continue to invest in the stock market and REITs, as we believe these instruments will outperform over the long term. We also have a small exposure to the bond market.

We use a combination of T-bills and SSBs for our short-term needs to park our cash to enjoy the relatively higher interest rate while it lasts.

Whether or not investors should ‘T-bill and chill’ depends on their time horizon, risk appetite, and investing objective. Happy investing!

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Disclaimer: The information provided here is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice or recommendation of any sort.

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David Ang

About David Ang

A long-term investor with a portfolio across the United States and Asian equities, REITs, commodities, and fixed incomes. After over a decade of hands-on investing (and making countless mistakes), I'm excited to use this platform to share what I've learned over the years. And let's continue to learn together. Writing about macro economy, equities, personal finance, web3. Follow me on Twitter: @danggaku