1-year T-bills a better buy than 6-month T-bills (or fixed deposits)? What about CPF-OA buyers?


Some of you in the Telegram Group have asked whether the 1-year T-Bills are a better buy instead of 6 month T-Bills.

Do note that there are only 4 1-year T-Bills available for auction each year (once a quarter).

And the next 1-year T-Bills auction is coming up on 27 July 2023.

So investors who want to lock in yields for a year should definitely keep a lookout.

Estimated Yields on the July 1-year T-Bills?

That said – the 1-year T-Bills tends to be quite popular.

They are especially popular with CPF-OA investors, because it allows you to lock in the yields for 1-year, and it minimises lost CPF-OA interest.

So the past few 1-year T-Bills have all closed below market yields (the most recent auction closed at 3.58%).

The 1-year T-Bills trade at 3.62% on the open market.

If we assume this holds true – you may see about 3.5%-ish yields on the July 1-year T-Bills.


Should you buy the 1-year T-Bills instead of 6-month T-Bills?

Some simple numbers.

If you assume the 6-month T-Bills will close at 3.9% yield.

And 3.6% for the 1-year T-Bills.

Then as long as you can roll over the 6-month T-Bills at 3.4% or more in December 2023, you’re already ahead on the 6-month T-Bills (slightly higher yield required because of the lost of interest between T-Bills).

Is this a fair bet?

Personal View

Personal view – I frankly have no clue where interest rates will be in 6 months.

If you look at latest market pricing – market today is pricing in 1 – 2 rate cuts in 1H 2024.

But will market expectations change by December 2023?

Hell yeah.

We’re at the point in the cycle where what happens next is going to depend on how the Feds prioritise fighting inflation over preventing a recession.

What exactly Powell is going to do in the next 6 months – 1-year.

I don’t have a strong view on this.

1 year T-Bills vs 1 year Fixed Deposit?

Assuming the 1-year T-Bills are issued at 3.5ish yields.

That’s frankly not all that attractive, considering that you can just go to RHB bank and get a 1-year fixed deposit at 3.5% – 3.55% without any hassle.

You dont even need to wait for the 27 July auction, and you technically have the option to break the fixed deposit any time (by forfeiting the interest).

So if you really wanted to lock in interest rates for 1-year you might as well just go with a fixed deposit at 3.5 – 3.55% with RHB Bank.

It’s simple and fuss free, and you have the option of breaking any time.

And you can get it done tomorrow and not have to wait for the T-Bill auction.

Different for CPF buyers though

Big caveat that the analysis might be different for CPF-OA buyers though.

Because for CPF-OA buyers there is no fixed deposit alternative – you have to choose between 6-month and 1-year T-Bills.

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But do note the auction date is 27 July, so you will lose 14 months of CPF-OA interest

But do note auction date is 27 July.

This means that if you buy using CPF-OA funds, the moneys will be deducted from your CPF-OA on 28 July and you lose July interest.

But T-Bills are only issued in Aug, and mature on 30 July 2024.

You need a couple of days to withdraw from CPF-IA back into CPF-OA on maturity.

Meaning that effectively you lose July 2023 – August 2024 CPF interest, which is 14 months CPF-OA interest.

Does it still make sense to buy the 1-year T-Bills with CPF-OA then?

I’ve crunched the numbers below for you.

Assuming you buy the 1-year T-Bills at 3.60%.

With $100,000 CPF-OA funds.

You’ll still make $683 extra buying the 1-year T-Bills, as compared to leaving them in CPF-OA.

This is of course assuming that there are no changes to the CPF-OA interest rates.

What about 6 month T-Bills vs 1 year T-Bills?

What about 6 month T-Bills instead?

Assuming that you buy the 6 month T-Bills at 3.85%.

Roll them over at 3.60%.

Then the 6 month T-Bills come out slightly ahead – $145 extra.

So… buy 1-year or 6 month T-Bills with CPF-OA?

As you can imagine, there’s a lot of assumptions that go into the numbers above.

Where will T-Bills interest rates be in 6 months?

Can you roll over in the same month or the following month?

Whatever the case, it’s fairly clear that the numbers for 6 month and 1-year T-Bills are very close.

Close enough that it will come down to factors beyond your control.

So for CPF-OA investors who want the peace of mind and don’t want to have to bother applying for T-Bills again for the next 1-year.

I think the 1-year T-Bills are worth considering.

Auction: BS23113V 6-Month T-bill auction on 6 July 2023

For those keen on the 6-month T-Bills.

The next 6-month T-Bills auction (BS23113V) is on 6 July 2023.

Cash applications should go in 1 day before.

And CPF-OA applications should go in 2 days before.


Estimated yield on the 6-month T-BIlls?

A lot of you have been asking whether T-Bill yields will cross 4.00%, so let’s look at the market pricing.

6-month T-Bills trade at 3.87% on the open market

The latest 6-month T-Bills trade at 3.87% on the open market.

12-week MAS Bills trade at 4.11%

While the institutional only 12-week MAS Bills trade at 4.11%.

Most recent T-Bills auction went up to 3.89%

You will recall that the most recent T-Bills auction closed at 3.89%, which is the highest it has been since March 2023:

Demand for T-Bills seems to be dropping

This rise in T-Bills yields seems to have been driven by declining demand for T-Bills.

Why exactly demand for T-Bills is going down is not so clear.

My theory is that investors are deploying their cash elsewhere – whether it’s in a longer term fixed deposit to lock in yields, or into capital markets (stocks / REITs) given that market volatility has calmed down.

If this continues going forward, we may see T-Bills yields continue to creep up.

Will 6-month T-Bills yields cross 4.00%?

So will T-Bills yields cross 4.00% for this 6 July 2023 auction?

It’s definitely possible – the big wildcard is going to be the application amounts.

If application amounts continue to slide, we could well see T-Bills yields pass 4.00%.

That said, I don’t think this is going to be my base case.

Estimated range of 3.85% – 3.95% on the next T-Bills auction

I think base case we’ll probably see the 6 month T-Bills yields come in around the 3.85% – 3.95% range.

Could be wrong though, so let’s see.

As always, I encourage investors to place a competitive bid to avoid any freak results.


This article was written on 29 June 2023 and will not be updated going forward. For my latest up to date views on markets, my personal REIT and Stock Watchlist, and my personal portfolio positioning, do sign up as a Patreon.


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