The auction for T-bill 8 Aug 2023 (BS23115E) concluded with the final cut-off yield down to 3.75%. The continued decline in yield likely disappoints investors, considering it was still at 3.99% last month. Here is the summary of the auction:
T-bill 8 Aug 2023 (BS23115E) Yield Dropped
If the Fed just hiked the benchmark interest rate again last month, shouldn’t T-bill yield also rise? Instead, this T-bill 8 Aug 2023 (BS23115E) yielded only 3.75%, much lower than the 3.85% yield from the previous auction.
The chart shows that the T-bill yield has been on the way down since last month. On a longer timeframe, since the end of 2022, the yield has generally trended down. But regardless, if we zoom out further, we can see that the current yield is still one of the highest in recent times.
What could contribute to the lower yield?
High T-bill Demand
The total amount applied for this auction was high. We haven’t seen this level of demand since April 2023.
The total application amount was $12.3 billion. Such high demand may contribute to the lower yield in this auction.
With the Fed expecting to pause this current rate hike cycle soon and starting to pivot next year, many investors may be more incentivized to start locking in the higher rates now. Additionally, the lack of other options to invest short-term cash drives investors to T-bills, which raises demand further. Investors seeking capital preservation are drawn to T-bill for the relatively safe and guaranteed principal and interest payouts.
CPF Buyers
Due to the favorable maturity date, this auction may also see more CPF applicants. Most CPF applicants likely applied using competitive bids and were more likely to place a conservative bid limit to ensure they received the full allocation. As a result, this might have driven the yield down further.
Higher competitive bids
This T-bill 8 Aug 2023 (BS23115E) auction saw a relatively lower non-competitive bid amount, at only $1.9 billion. The high demand can therefore be attributed to the competitive bids, which amounted to $10.4 billion!
This continues the trend from the previous auction, where we also saw much higher demand from competitive bids. In recent auctions, we saw non-competitive bidders failing to get full allocation due to reaching the 40% allocation limit. As a result, most investors switched to competitive bids to ensure the full allocation. This and the bids from the CPF buyers could be a few driving factors for the higher competitive bid amount.
The auction results show that non-competitive bids have decreased significantly and are now well below the full allocation threshold of $2.2 billion. We can monitor this trend, and if it continues, investors may be able to switch back to non-competitive bids in the future and still receive the full allocation.
Are T-bills Better than Fixed Deposits?
Now that the T-bill yield has dropped quite a bit in this auction, how does it compare to other fixed-income alternatives? The most popular alternative is fixed deposits.
Singapore banks have been offering relatively unattractive fixed deposit rates recently. Our local banks offer as low as 2.70%. Whew, that’s just unattractive! Other banks in Singapore still provide higher rates, up to 3.5%. But again, it is still well below the T-bill yield.
Other alternatives for parking short-term cash include high-yield savings and cash management accounts.
High-yield savings accounts offer attractive rates above 4%, but with many hoops you must fulfill, such as crediting salary, spending on credit cards, buying insurance, etc. If you can meet those criteria, those high-yield savings accounts can be a viable option.
Cash management accounts also offer attractive rates but with slightly different risk profiles. Your principal in cash management accounts is not guaranteed, and the interest rate is floating. The floating interest rate will go down if the benchmark interest rate starts to reverse.
Despite its lower yield, T-bills are still one of the best fixed-income investments for investors looking to preserve their capital.
If you believe the market’s assessment that we may be nearing the end of this rate hike cycle, now may be an excellent time to consider locking in the higher rates.
If you are interested in applying for the next T-bill, you can follow our step-by-step guide on how to buy T-bills.
