We got the auction result for the 6-month T-bill BS24102S, and the resulting cut-off yield was 3.54%. Eugh! That is a significant drop from the previous cut-off yield of 3.70%. What could have caused the drop?
Auction Results
This is the summary of the auction results:
Yield Dropped to 3.54%
We have been seeing a trend of declining T-bill yield in the past several auctions, and this latest auction confirmed the trend. The cut-off yield for T-bill BS24102S fell to 3.54%, a significant drop from the previous auction of 3.70%. With many investors probably disappointed with this result, let’s zoom out a bit to see where we are historically:
The chart above shows the historical cut-off yield for 6-month T-bills. The bad news is that 3.54% is below the range we have been hovering throughout 2023. We are now back to the level last seen in October 2022. On the other hand, the good news is that the current yield is still one of the highest in recent years.
We understand that the market may have expected interest rates to reverse this year and price in lower yields. But what other factors could drive yields lower?
Very High Demand
We saw a notable jump in the total application amount from $13.6 billion in the previous auction to $14.6 billion in this T-bill BS24102S auction. Wow, that is a jump of $1 billion! The demand may be due to the expectation that the interest rates will start to decline this year, and therefore, it would be beneficial to start locking in the relatively higher rates for longer.
Another thing to note is that the total allotted amount available was $100 million lower than the previous auction. The lower available allocation and the significantly higher demand might have contributed to the steep drop in the cut-off yield.
Non-Competitive Bids
Good news for non-competitive bidders: you got full allocation, yay! Since most of the demand came from the competitive bidders, non-competitive bidders still got 100% allocation.
So, for non-competitive bidders, are you satisfied with the auction result?
With the trend of elevated non-competitive bid amounts, we will likely still utilize competitive bids in the upcoming auctions to ensure full allocation.
T-Bill Alternatives
With the T-bill yield continuing to decline, what other alternatives can we consider to park our short-term cash?
The most obvious one is fixed deposits. Fixed deposits in Singapore have offered mediocre interest rates for a while, but with a drop in the T-bill yield, how do they compare now? At the time of this release, the highest SGD fixed deposit rate is offered by CIMB bank at 3.5% for 6 months. If you are its preferred banking client, you can instead enjoy 3.55%. It is only marginally lower than T-bills now. If T-bills continue to decline while fixed deposits maintain their rates, we may start to consider fixed deposits again.
Another option is to invest in cash management accounts, such as Syfe Cash+ Guaranteed and StashAway Simple Guaranteed. For a 6-month lock-in period, the current offer is 3.6%, which is higher than the latest T-bill yield. With cash management accounts, please note that SDIC does not insure your money because they are considered investments.
What Would We Do?
The auction result for T-bill BS24102S was likely disappointing for most investors. With the interest rate expected to decline this year, it is no surprise that we start to see a decline in T-bill yield as more investors try to lock in the higher interest rates while they last. We will continue to monitor the T-bill yield movement in the coming auctions.
In the meantime, we will still utilize T-bills to park a small portion of our short-term cash to enjoy the higher rates while they last. We have migrated most of our short-term cash out from T-bills to Singapore Savings Bond (SSB) in the past several months. SSB allows monthly redemption with accrued interest while locking in relatively higher interest rates for the next ten years.
What do you think? Will you be applying for the next T-bill auction? If yes, 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.
