We have just gotten the auction result for this 1-year T-bill 24 Oct 2023 (BY23103V), and the cut-off yield was 3.7%. This yield is flat from the previous auction, which yielded 3.74%. This outcome is slightly disappointing because many investors expected a yield above 3.8% based on the recent market movement. Regardless, investors should still be satisfied with this yield as it allows them to lock in this relatively high yield for one year. Yay!
Auction Result
Allotment
| Total Amount Allotted | S$4.5 billion |
| Amount Allotted to Non-Competitive Applications | S$1.4 billion |
| Total Amount Applied | S$11.9 billion |
| % of Competitive Applications at Cut-off Allotted | Approximately 64% |
| % of Non-Competitive Applications Allotted | 100% |
| Bid-to-Cover Ratio | 2.65 |
Yield and Price
| Cut-off Yield | 3.7% p.a. |
| Cut-off Price | 96.31 |
| Median Yield | 3.55% p.a. |
| Median Price | 96.46 |
| Average Yield | 3.32% p.a. |
| Average Price | 96.689 |
Source: MAS
In our opinion, the result of this auction is only slightly disappointing. Even though we couldn’t get the yield above 3.8% as expected, the yield for the 1-year T-bill has been relatively stable this year. This 3.7% yield is roughly flat compared to the previous auction, which yielded 3.74%. This year, the yield has generally stayed within this range.
From the chart above, we can also see that the current yield is at one of the highest levels in recent years. As the market expects that we are nearing the end of this rate hike cycle, this higher yield may only last for a while longer. If you can secure an allocation this round, congratulations on locking in for the next 12 months!
Higher Demand
This T-bill 24 Oct 2023 (BY23103V) auction saw a jump in demand to $11.9 billion. This is a significant step up from the previous auction application amount of only $9.3 billion. We also saw a similar pattern with the latest 6-month T-bill auction, where the total application amount jumped to a record high for this year.
This jump in demand may be attributed to the flight to quality due to the uncertainties surrounding the global economy, the deterioration of the Chinese/HK market, and the likely impending recession in the US. Additionally, as we may be reaching the tail-end of this rate hike cycle, more investors were incentivized to lock in the higher yields while they last.
This high demand may be one of the contributors to the lower cut-off yield in this auction.
Non-Competitive Bidders Fully Allocated
Non-competitive bidders get their full allocation in this auction. Hooray! The total amount allotted to non-competitive bidders was only $1.4 billion. Despite the bounce in this auction, this number is still a safe distance away from the 40% allocation cap.
How Competitive Is 1-Year T-Bill?
If we compare the current T-bill 24 Oct 2023 (BY23103V) yield of 3.7% to the historical yields, we can safely say that it is still at one of the highest levels in recent times. The yield back in January 2022 is still below 1%! But how about if we compare it to the alternatives?
Fixed Deposits
The alternative to a 1-year T-bill is the 12-month fixed deposits. For the 12-month fixed deposit, the highest interest rate offered by the banks in Singapore is only around 3.6%, which is still lower than this latest T-bill yield of 3.7%. Furthermore, remember that SDIC only insures up to $75,000 in fixed deposits. Any amount above that is not covered by insurance. Examining the current rates offered by fixed deposits, it appears that the 1-year T-bill is the more attractive option for investors looking to park their money for the next 12 months.
6-Month T-Bills
If you are willing to take a refinancing risk, the 6-month T-bill yields a slightly higher rate than the 1-year T-bill. The latest 6-month T-bill auction yielded 3.87%, and the one before yielded 4.07%. However, remember that you must reapply for another T-bill after six months, and the interest rate may have changed. If you prefer the security of a fixed interest rate for a more extended period, the 1-year T-bill is the better option since the difference in interest rates is not significant.
