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-bill is fixed deposits. If you have been following us, you should have known that the fixed deposit rates in Singapore have been on a 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 the T-bill is just 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 the current T-bill but with the benefit of not needing to lock your money. However, unlike with the T-bill, your principal is not guaranteed with the cash management accounts. 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.
