The cut-off yield for the latest T-bill BS24101Z auction dropped to 3.7%. Most investors will likely be disappointed by this result because the yield is lower than the 3.74% from the previous auction. What could be the cause of the decline?
Auction Summary
Here is the summary of the auction result:
One thing to note is that the total amount offered jumped from $6.1 billion in the previous auction to $6.4 billion in this T-bill BS24101Z auction. That is a $300 million additional allocation!
Yield Declined
Despite the increase in the offering amount, we still saw a decline in the cut-off yield. This T-bill BS24101Z auction concluded with a yield of 3.7%. Despite the drop, the 3.7% yield remains within the range we saw throughout 2023.
The T-bill yields have been relatively stable since last year. The current level of 3.7% remains one of the highest in recent years. Overall, the result of this auction is well within our expectations.
Demand Jumped
The T-bill BS24101Z auction demand significantly jumped from $12.8 billion in the previous auction to $13.6 billion. The application amount jumped by $800 million, wow! Even with the total amount offered higher by $300 million, the extraordinary demand outpaced the higher allocation. This could be one of the main reasons for the lower yield in this auction.
Non-Competitive Bids
Due to the higher demand, we also saw a jump in non-competitive bids amounting to $3 billion. This is, unfortunately, much higher than the $2.6 billion allocation limit for non-competitive bidders. As a result, the available allocations were distributed pro-rated to eligible non-competitive bidders.
Did you get your desired allocation in this auction?
Due to the trend of high non-competitive bid amounts in recent auctions, we will continue to use competitive bids to secure our full allocation in the coming auctions.
Some Alternatives
We think the current T-bill yield of 3.7% is still quite competitive compared to alternatives. The most popular alternative is fixed deposits. Unfortunately, at the time of this writing, the fixed deposit rates in Singapore only offer lower rates of up to 3.5%. Alternatively, you may consider institutional fixed deposits offered by some robo-advisory platforms, such as Syfe and StashAway. Syfe Cash+ Guaranteed and StashAway Simple Guaranteed offer slightly higher interest of 3.8% for three months of lock-in.
Another popular option is parking your cash into a cash management account, which may offer a higher return but with some drawbacks. First, your principal is not insured and guaranteed. Second, these accounts’ interest rates are floating, meaning they will track the prevailing interest rates closely. Should interest rates start to decline, these accounts will also lower the rates relatively quickly as there is no locking period. Cash management accounts can be an option if you can accept these additional risks.
What Would We Do?
We continue to use T-bills to park a portion of our short/medium-term allocation. With the expectation that the interest rate may reverse this year, we have migrated some of our short/medium-term allocations into Singapore Savings Bond (SSB) to lock in the higher rates for the next ten years. SSB allows us to redeem every month without penalty while still earning the accrued interest.
So, 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.
