So the latest 12 month T-Bill auction results are out.
In the weekend article I predicted an indicative range of 3.9% – 4.1%, but I flagged that it was likely to come in on the lower end of this range (and possibly undershoot).
That turned out to be the right call, because the 12 month T-Bills came in with a final cut-off yield of 3.87%.
26 January 2023 12 month T-Bills Auction Results
Diving into the numbers.
The auction received $10.5 billion in applications (2.91 times covered).
This is quite a bit lower than the most recent 6 month T-Bills auction, which came in at $13.06 billion in applications.
Whether it’s due to the Chinese New Year break or expectations of lower yields, application interest seems to be slowing.
That said, the $10.5 billion in applications is comfortably above the previous 12 month T-Bills auction (October 2022), which only received $8.5 billion in applications.
I suppose the takeaway is that T-Bills interest is dying down compared to the past 2 months of record interest.
But still much higher than where it was 3 – 6 months ago.
Allotment Statistics for 26 January 2023 12 month T-Bills Auction
Just to put it very simply.
If you applied non-competitive you will get 100% allotment (at 3.87%).
If you applied competitive below 3.87% you will get 100% allotment (at 3.87%).
If you applied competitive at 3.87% you will get 75% allotment (at 3.87%).
If you applied competitive above 3.87% you will get nothing.
I’ve been getting quite a few questions on this so just to clarify – everybody gets issued T-Bills at 3.87% regardless of what level you bid (as long as you get allotted).
It doesn’t mean that if you bid 3.00% competitive you will get issued T-Bills at 3.00% okay.
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General Reactions from me – Interest Rates keep going down
I don’t think this result (3.87%) comes as a surprise to anyone.
In my weekend article I shared my concerns that the yield could come in as low as 3.8% because of high demand from CPF-OA applicants.
So 3.87% is probably not that bad in the sense that it could have been worse.
The downtrend in interest rates is also consistent with global interest rate trends, which has been firmly in a downtrend since the start of the year.
This has coincided with a broad rally in risk assets across the board, as you see meaningful recovery in stock prices (especially interest rate sensitive sectors like tech, REITs and crypto).
I’ll share more in depth macro views this weekend.
What I would say that this decline in interest rates and recovery in asset prices is ironically easing financial conditions and undoing a lot of the good work the Feds have done to combat inflation.
If this continues, you could see a meaningful resurgence in inflation – which will force the Feds to respond with higher interest rates (or stay high for longer).
In other words, if this continues to play out, it could set us up for higher interest rates (and more pain) going forward.
For now, I suppose the point is that if T-Bills interest rates are going down, I’ll just swap the money over to Fixed Deposit instead (you can get 4.08% in an 8 month OCBC Fixed Deposit).
Although if this keeps up, we’ll probably see T-Bills interest rates come in even higher later on in 2023.
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