In my weekend article I shared that I expected a yield of 3.60% – 3.70% for the 12 month T-Bills auction.
Well results are out.
The final cut-off yield came in slightly below that range at 3.58%.
Application amounts for T-BIlls did not increase dramatically
Total application amount was $12.7 billion.
You can see how this compares to the application amounts of the other 6-month T-Bills.
Pretty much in line I would say – neither a big increase nor a big decrease.
So it’s hard to say that this auction result was a freak result due to high demand, it just looks to be fair market pricing for the 12 month T-Bills
Just a note that the 12 months T-Bills trade at 3.71% on the open market yesterday right before the auction.
So this auction result is slightly lower than market yields.
As always, I encourage T-Bills investors to place a competitive bid to protect yourselves from such scenarios (cut-off yield coming in below the yield that you are prepared to buy).
12 month T-Bills at 3.58% – Still a good buy for CPF-OA buyers?
Investors using cash can get up to 3.90% on a 12 month Fixed Deposit these days (RHB Bank), so the T-Bills at 3.58% wouldn’t be that attractive.
The main attraction for these T-Bills will be for CPF-OA buyers.
I’ve run the numbers below assuming that:
- $100,000 in CPF-OA is invested
- One buys 6 month T-Bills at 3.75% (latest auction price) and rolls over at 3.60%
Key takeaway is that it is still worth it to buy T-Bills with CPF-OA (6 month or 12 month).
The 12 month T-Bill buyer (3.58%) would make $871.7 more than had he just placed in the money in CPF-OA.
This is a 29.9% increase in interest earned.
But between 6 and 12 month T-Bills, the results are very close.
6 month T-Bills come out on top here, but the assumption is that (a) you can roll them over at 3.60% in 6 months time, and (b) you can roll them over in the same month (avoid losing another month of CPF-OA interest).
And all that work and uncertainty for an extra $97 in interest doesn’t seem all that worth it.
So yeah… despite the yields coming in slightly lower than expected, I would still say this is a pretty acceptable result for CPF-OA buyers.
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