The auction for T-bill 11 July 2023 (BS23113V) has concluded, and the final cut-off yield was 3.99%. This is great news for investors as the yield is nearing the 4% mark again. With Singapore’s local banks starting to slash their fixed deposit rates, T-bill having close to a 4% yield has become a much more attractive option. Let’s see the auction summary:
Rising Yield
Continuing the trend of rising yield from the last several auctions, this T-bill 11 July 2023 (BS23113V) saw the yield soaring to 3.99%. Here is the historical T-bill yield:
The trend of rising short-term interest rates continued in this auction. Although it is still off from the top seen late last year, the current yield of close to 4% can be considered attractive, considering the alternative, such as fixed deposit, yields a much lower rate. This is good news for investors seeking to park their short-term cash.
T-bill Demand Rebounded
After a lackluster demand in the previous auction, this latest auction finally saw a rebound in the T-bill demand:
The application demand rebounded from $9.9 billion to $10.3 billion. However, this demand was still rather muted compared to many previous auctions, which saw demand exceeding $12 billion.
High Non-Competitive Bids
We have noticed the trend of rising non-competitive bid amounts in the last several auctions. This has not been an issue, as all non-competitive bidders could still get their full allocation.
This latest auction, unfortunately, told a different story for non-competitive bidders. We saw one of the highest non-competitive bid amounts. Because the application amount exceeded the allocation, non-competitive bidders only got 96% pro-rated allocation.
Remember, only 40% of the total offering will be allocated to non-competitive bidders. In this T-bill 11 July 2023 (BS23113V) auction, only 40% of $5.4 billion = $2.16 billion was given to non-competitive bidders. This time we saw $2.2 billion in the non-competitive bid amount! Therefore, the allocation was pro-rated to all non-competitive applicants.
We can monitor if the rising trend of non-competitive bids continues going forward. If you want a better chance to get the full allocation, consider placing competitive bids in the next auction.
Is the Current T-bill Yield Attractive?
In short, yes, it is attractive! We compare T-bill to short-term fixed-income alternatives such as fixed deposits, high-yield savings, and cash management accounts.
If you had followed us, you would have known that local Singapore banks have slashed their fixed deposit rates to below 3%. Euhh… that’s just unattractive. T-bill offers close to a 4% yield and is way more attractive now.
The other alternative, high-yield savings accounts, offers higher rates if you can fulfill their requirements. This is where it gets difficult because some require you to credit your salary, spend your credit card, buy insurance, etc. The effective interest rate is much lower for most people. Not to mention the limit on the maximum amount that can benefit from the higher rates. Compare this to T-bill, which has pretty much no ceiling.
Cash management accounts also offer high rates, but these are of different risk profiles than T-bill. Cash management accounts do not guarantee your initial principal. The interest rate is also floating. Should the benchmark interest rate fall, the interest rate from the cash management account will also drop. In contrast, T-bill guarantees your initial principal and the interest rate for the duration of the T-bill.
With all these considerations, T-bill still provides investors with one of the better short-term interest rate exposures. Investors who want to park their cash in the short term may consider investing in T-bill.
Are you interested in applying for the next T-bill auction? You may follow our step-by-step guide on how to buy T-bills.
