6-month T-Bills Auction on 18 Jan – Will interest rates break 4.0% or drop again? Are 12-month T-Bills, or Money Market Funds a better buy?

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So the next 6-month T-Bills auction is on 18 Jan.

Unfortunately, after closing as high as 4.07% two months ago.

T-Bills yields have since dropped to 3.74%.

US interest rates have also plunged since late October – the US 10 year yield dropping from 5% to 4.0%.

With the market pricing in a whopping 6 interest rate cuts in 2024.

Do note that there will be a 12-month T-Bills auction this month, opening on 18 Jan 2024.

This raises a couple of questions:

  1. What is the estimated yield on the next 6-month T-Bills?
  2. Should you buy 12-month T-Bills instead?
  3. Are money market funds a better buy than T-Bills?

           

Next T-Bills auction is on 18 Jan (Thursday) – (BS24101Z 6-Month T-bill)

First off – next 6 months T-Bills auction is on 18 Jan (Thurs).

This means that:

  • If you’re applying in cash do apply by 9pm on 17 Jan (Wed)
  • If you’re applying using CPF-OA do apply by 16 Jan (Tue)

What is the estimated yield on the next 6-month T-Bills auction? (BS24101Z 6-Month T-bill)

I’ll split the analysis up into 2 parts:

  • Fundamentals perspective (economic growth, inflation, global interest rates etc)
  • Technical perspective (supply-demand)

(1) Fundamentals perspective:

T-Bills trade at 3.74% on the open market

6-month T-Bills are trading at 3.74% on the open market.

But… T-Bill trading liquidity is incredibly thin

But we’ve seen the past few auctions that trading liquidity on the T-Bills is so thin (just look at trading liquidity in the chart above) – that actually the market pricing is not that indicative.

You’ll find that the market pricing actually takes its cue from the latest T-Bills auction.

The past few auctions where the T-Bills auction yield diverged materially from market price (whether up or down).

It was actually market price that adjusted to the latest T-Bills auction yield, rather than the other way around.

So I would caution against placing too much reliance on market pricing on T-Bills – there just isn’t sufficient trading liquidity for true price discovery.

12-week MAS Bills flat at 4.03%

The institutional only 12-week MAS Bills have been flat the past month or two – at 4.03%.

Sharp moves in MAS Bills are a good indicator of the trend for T-Bills.

So as of now, MAS Bills are not showing any big changes in yields either way.

If you are submitting a competitive bid I do suggest taking a quick look at the latest MAS Bills pricing before you apply.

If there is a sharp move up or down – that could suggest a similar trend for T-Bills (can access it here).

US Interest Rates have plunged – huge expectations for interest rate cuts in 2024

That said – the market is overwhelmingly pricing in interest rate cuts in 2024.

The market today is pricing in 6 interest rate cuts in 2024 – a total of 1.5% in rate cuts:

This has impacted US interest rates (and global rates) across the board.

The US 2 year yield has dropped from 5%+ to 4.3%, although it has rebounded slightly of late:

There will be as 12 month T-Bills this month

I’ll do a fuller article on the 12-month T-Bills closer to the auction date, when more details are available.

For now though, market yields on the 12-month T-Bills are 3.75%, very close to that of the 6-month T-Bills.

So you may argue that for investors who don’t need the liquidity, the 12-month T-Bills may be a better buy.

You save yourself all the worry about interest rate cuts in 2024, and don’t have to bother with the hassle (and lost interest) of having to refinance the 6-month T-Bills.

The wildcard is that if everyone thinks this way, and saves their cash (or CPF-OA) for the 12-month T-Bills, this will affect yields.

Past auctions generally seem to confirm this, as the auction yields for the 12 month T-Bills tend to come in lower than market yields (given there are only 4 such auctions a year).

From a Technicals, supply-demand perspective

From a more micro perspective, what matters is the supply-demand dynamics.

T-Bills Supply is up 4.9% to $6.4 billion (vs $6.1 billion previous auction)

T-Bills supply is going up meaningfully this auction.

The last T-Bills auction only had $6.1 billion T-Bills on offer.

This auction – T-Bills supply is going up 4.9% to $6.4 billion.

Assuming demand stays roughly the same, you will need to see higher yields to absorb the higher amount of T-Bills.

So this is pretty bullish for T-Bills yields, and might offset the high demand.

Demand for T-Bills flat at $12.8 billion (vs $12.8 billion)

In the latest T-Bills auction, demand for T-Bills stayed flat at $12.8 billion (vs $12.8 billion the previous auction).

This isn’t exactly great news – as it shows demand stabilising at record levels despite the downtrend in T-Bills interest rates.

You can see how current levels of T-Bills demand is close to the highest it has been in all of 2023:

T-Bills yields up slightly to 3.74% (vs 3.73% the previous auction)

There was a small increase in T-Bills yields the last auction to 3.74% (3.73% the previous auction).

T-Bills yields are close to the lowest in all of 2023, and yet demand is still near record highs.

Median Yield – Average Yield spread coming down – less “lowballers”?

To illustrate what this is:

Imagine you have 100 bids.

The median yield, is if you arrange all the bids from small to high, and take the yield of the 50th bid.

While average yield, is adding up the yields of all 100 bids and dividing by 100.

So average yields are skewed by lowball bids, while median yields are not.

To put it simply – the bigger the spread between the median yield and average yield, the more “low-ballers”.

And with the most recent few T-Bills auction before this, spreads completely blew out – close to the highest in 2023.

In the latest auction – spread have started to come down:

This is a good sign, it indicates more rational bidding for T-Bills.

Although you could argue that some of this is due to the stabilisation in yields, which results in greater certainty for investors.

Estimated yield of 3.70% – 3.80% on the 6-month T-Bills auction? (BS24101Z 6-Month T-bill)

Let’s put it all together.

Market is pricing in 6 interest rate cuts in 2024.

However SGD interest rates at the short end have been generally stable

Meanwhile demand for T-Bills remains at record levels, but spread data indicates more rational bidding.

The bright side is that T-Bills supply is up meaningfully this auction – a 4.9% higher than last auction.

Given all of the above – I think T-Bills should remain flattish vs the previous auction (3.74%), possibly slightly higher.

I would probably go with an estimated yield of 3.70% – 3.80% on the next T-Bills auction.

There is a 12-month T-Bills auction on 25 Jan 2024

Do note that there will be a 12-month T-Bills auction on 25 Jan.

There are only 4 12-month T-Bills auctions a year, so if you want to buy some don’t forget to apply.

What would I do? 6 month or 12 month T-Bills?

Personally I’m going to be applying for the 6-month T-Bills.

I’m not that big a fan of locking up my cash for a whole 12 months, and 6 months is more manageable liquidity wise.

But investors who don’t need the liquidity, or want to lock in yields for peace of mind.

The 12-month T-Bills are probably worth looking at.

Should you submit a competitive or non-competitive bid?

I usually encourage investors to submit a competitive bid (just in case there is a freak result and yields drop a lot).

And submit as close to the deadline as you can, so you can take a look at where market pricing is at that time before deciding on your bid.

But I know some investors really don’t like competitive bidding.

In which case non-competitive bidding is probably fine as well (full allotment the previous auction).

But do note that with non-competitive, if there is a freak result and yields drop to 3.0%, you are still forced to buy.

What yield to submit with competitive bidding?

Some of you have asked how to approach competitive bidding for T-Bills.

Apparently there are others out there who are advocating for submitting low bids like 1.5% just to ensure you get an allotment.

I don’t really agree with that kind of reasoning, and if everyone were to do that you’ll see T-Bills close at ridiculously low yields.

I would say to think about the minimum yield you are prepared to buy the T-Bills.

Let’s say any yield below 3.60% and you would prefer to just go with money market funds.

Then a competitive bid around the 3.60% range may make sense.

Don’t forget that you can submit multiple bids.

So you can submit a bid for $20,000 of T-Bills at 3.60%, and another $10,000 at 3.80%.

This allows you to buy more T-Bills if yields close high, and yet still get some if yields close low.

There is no application fee for T-Bills bids too, so this isn’t an issue.

Are T-Bills still worth buying vs Money Market Funds, Singapore Savings Bonds or Fixed Deposit or Savings Accounts?

 

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Money Market Funds pay about 3.8% – 4.1% yield

With the drop in T-Bills yields, Money Market Funds are actually pretty competitive these days.

Mari Invest, which is the money market fund solution via Mari Bank in a tie up with Lion Global, pays about 3.8% – 4.1% (exact yield fluctuates over time).

Likewise Fullerton SGD Cash Fund pays about 3.6% – 3.9%.

Money Market Funds are technically not risk free though – so this is a big point to note.

I’ve extracted the asset allocation for Mari Invest below (exact fund is Lion-MariBank SavePlus).

Almost 70%+ of the assets are parked in MAS Bills backed by the Singapore government, so risk should be on the lower side.

However just like all money market funds, this is technically not risk free, and in extreme situations there is a possibility of capital loss.

The benefit though, is that you can get your money back with T+1 liquidity, which is a big plus vs T-Bills

I personally have started putting some cash into Money Market Funds instead of T-Bills, due to the liquidity benefits and yields that are competitive vs T-Bills.

Singapore Savings Bonds are not an attractive buy

Yields on the latest Singapore Savings bonds are:

  • 2.72% for the first 7 years
  • 2.81% for 10 years

I don’t think SSBs are that attractive anymore given that most investors should have locked in the 3%+ yields just a few months back.

Best Fixed Deposit option? Bank of China pays 3.60% for 3 months

The best Fixed Deposit option I could find today is Bank of China which pays:

  • 3.60% for 3 months
  • 3.50% for 6 months

Minimum of $5,000 deposit.

So if you don’t want to buy T-Bills, but want something risk free (below SDIC limit), this is probably the next best thing.

Picking between T-Bills vs Money Market Funds vs Singapore Savings Bonds vs Fixed Deposit vs Savings Accounts?

I would say if you want the highest short term yield, T-Bills / Money Market Funds are probably your best bet today.

Both should have pretty similar yields today.

The benefit of T-Bills is that it’s risk free, and you lock in the rates for 6 months, but at the cost of liquidity.

The benefit of Money Market Funds is that you can get the money back anytime with T+1 liquidity, but it’s technically not risk free, and the rates fluctuate over time.

Singapore Savings Bonds are not as attractive anymore after the drop in 10 year interest rates, so I wouldn’t bother with SSBs unless you’re really desperate to lock in yields.

Where am I parking my cash for liquidity?

Apart from T-Bills, I’ve been parking my cash in a mix of the following for liquidity:

Instrument

Approx Yield

Maximum

UOB One

5%

$100,000

Singapore Savings Bonds

3%+ (based on prior yields)

$200,000

MariBank Account

2.88%

$75,000

Mari Invest (or Fullerton SGD Cash Fund)

3.6% – 4.1%

No maximum (not risk free)

 

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I am applying for T-Bills with Competitive Bidding

I have some T-Bills that are just matured this week.

I’ll likely roll a portion of that into new T-Bills.

T-Bills yields seem to have stabilised around 3.7%, but I’ll still be submitting a competitive bid to avoid any freak results.

Money market funds are pretty attractive today given the decline in T-Bills yields, and offer T+1 liquidity.

I’ve been moving more of my funds over to money market funds for this reason, and I think they are a viable alternative to T-Bills.

Love to hear what you think though – Are you applying for T-Bills or money market funds? Where do you think yields will close?

 

This article was written on 12 Jan 2024 and will not be updated going forward.

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8 COMMENTS

  1. Thanks for this analysis. You indicated that UOB One is giving 5%(for first 100k). Isn’t it 4% (with salary dep and credit card spend)?

  2. Hi FH, previously I asked, if i have a sum of money set aside to pay for a major purchase 4 years later, how should I invest it? I have already put a big portion in SSB earning about 3%, some in T bills, some in money market funds (e.g. Fullerton SGD Cash Fund) and some in short term bond funds (e.g. Nikko AM Shenton Short Term Bond Fund SGD). Now, I see that there is a 2-year SGS bond “reopen” coming up: NX16100F, auction date 29 Jan 24, issue date 1 Feb 20, maturity date 1 Jun 26. Is this 2-year bond suitable for my purpose? I’m wondering if I should use this bond to lock-in interest rate before the anticipated rate cuts. If it is suitable for my purpose, could you please share how 2-year bonds work? It’s different from t bills as there are coupon payments. So how to bid? I mean, for t bills we bid what interest rate we want. But for bonds, there is coupon payment…do we still bid for what interest rate we want? If so, please advise what estimated interest rate is a fair bid for this coming 2-year bond. Thank you!

    • The 2 year bonds are trading at 3.3% open market. So thats where I would expect yields to come in (roughly).

      You can buy at auction, similar to the T-Bills. Application via UOB or OCBC or DBS. Here’s the MAS guide: https://www.mas.gov.sg/bonds-and-bills/investing-in-singapore-government-securities/buy-sgs-bonds-and-t-bills-at-auction-for-individuals

      It goes back to risk appetite, but 4 years is long enough that you can consider a mix of higher yield bond funds, or equities or REITs if you want to achieve a higher yield. But it also goes back to what you need the money for. If it’s a hard stop like buying a house or getting married, it may not be worth taking the risk of losing it, in which case what you’re doing now in sticking with risk free options would make sense. Only you can answer this for yourself.

    • Note that with 2-year bonds it’s not easy to get your money back before maturity. You can sell on the open market but liquidity is bad, and if interest rates go up you could be eating a capital loss (if you sell before maturity).

      I usually don’t use SGS bonds beyond 6 or 12 months maturity for liquidity reasons, but again ultimately a personal decision.

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