The next 6-month T-Bills auction is on 18 July 2024.
Unfortunately T-Bills yields have been on a clear downtrend of late.
From 3.76% 3 auctions ago, to 3.7% as of the most recent auction.
Latest comments from Jerome Powell this week suggest that he is likely to cut interest rates in September, which could further weigh on T-Bills yields.
3 key questions I wanted to discuss today:
- What is the estimated yield on the next 6-month T-Bills auction?
- What to buy for the highest yield – Fixed Deposit, Money Market Funds or T-Bills? What about Astrea 8 PE Bonds or Chocolate Finance?
- Where to park cash today to maximise yield and liquidity?
Next T-Bills auction is on 18 July (Thurs) – BS24114V 6-Month T-bill
Next 6 months T-Bills auction is on 18 July (Thurs).
This means that:
- For cash or SRS applications, the deadline is 9pm on 17 July (Wed)
- For CPF-OA applications, the deadline is 9pm on 16 July (Tues)
Deadline for CPF-OA applications is same as cash applications – for DBS and OCBC Bank
Do note that if your CPF-IA account is with DBS Bank or OCBC bank.
The deadline for CPF-OA applications (via ibanking) is the same as cash applications (being 9pm the day before the auction closes).
However for UOB you still need to submit the CPF-OA application 2 business days before:
What is the estimated yield on the next 6-month T-Bills auction? – BS24113N 6-Month T-bill
I’ll split the analysis up into 2 parts:
- Fundamental perspective (economic growth, inflation, global interest rates etc)
- Technical perspective (supply-demand)
(1) Fundamental perspective for T-Bills:
T-Bills trade at 3.70% on the open market
6-month T-Bills are trading at 3.70% on the open market.
But… T-Bill trading liquidity is incredibly thin (and therefore market yields are not definitive)
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 useful.
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 are flat at 3.87% (vs 3.87% at the previous auction)
The institutional only 12-week MAS Bills are flat at 3.87%.
Sharp moves in MAS Bills are a good indicator of the trend for T-Bills.
So as of now, MAS Bills are pointing towards stable yields with a slight uptrend.
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).
Market is pricing in 2 interest rate cuts in 2024 – not good for T-Bills
With Jerome Powell’s comments this week, it seems like he is itching to cut interest rates at the September FOMC.
For reference – this was market pricing on US interest rates at the previous T-Bills auction.
And this is the latest market pricing:
You can see how the probability of interest rate cuts in 2024 has gone up across the board, with the probability of a September rate cut up to 86%.
This is not good for T-Bills yields, and would suggest lower yields.
From a Technicals, supply-demand perspective for T-Bills
From a more micro perspective, what matters is the supply-demand dynamics.
T-Bills Supply will rise to $6.8 billion (vs $6.5 billion at previous auction)
The good news is that the amount of T-Bills available at this auction is rising.
$6.8 billion of T-Bills on offer at this auction – up 4.6% vs the $6.5 billion of T-Bills at the previous auction.
T-Bills supply has been a pretty decent predictor of T-Bills yields, so this is a good sign after supply fell the past 2 auctions.
Demand for T-Bills rises to $15.6 billion (vs $15.5 billion the last auction)
Unfortunately the demand for T-Bills remains near record highs.
$15.6 billion in applications, up slightly from $15.5 billion the previous auction.
You can see below how demand for T-Bills is close to cycle highs the past 18 months.
Some of you have argued that this is because of the recent rebound in T-Bills yields (vs the drop in Fixed Deposit rates), and it’s hard to argue with this.
Especially when you consider that bank fixed deposit rates are significantly lower than 6-month T-Bills yields.
Median Yield – Average Yield spread went up – more “lowballers” for T-Bills?
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”.
In the latest auction – spreads went up quite sharply.
This is not good – suggests that investors are submitting quite low ball bids just to get an allocation.
One possible reason is that this was due to CPF-OA bidders, because the last auction was the start of the month and great for CPF-OA buyers (to minimise lost interest).
If so, it’s possible that with the CPF-OA buyers out of the way we may see spreads come down at this auction.
Will we see more lowballers at the next auction? As more investors switch to competitive bids?
The other problem though.
Is that in the last auction, non-competitive applications only saw 70% allotment (due to high demand).
I suggested that this may result in investors switching to competitive bids in the next auction to ensure they get an allotment.
Unfortunately, a lot of readers seemed to agree with me – that they may indeed switch to competitive bids.
If this is the case, that’s going to introduce a lot of new competitive bidders, and there’s some uncertainty on whether they will a lowball bid just to ensure an alloment.
If so, this may skew yields down.
So guys – let’s try to keep the bidding competitive shall we. 😉
6-month T-Bills yields dropped to 3.70% at the most recent auction (vs 3.74% the previous auction)
Because of all of the above.
T-Bills continued their downtrend, falling to 3.70% in the most recent auction (down from 3.74% the previous auction).
Estimated yield of 3.60% – 3.75% on the 6-month T-Bills auction? BS24114V 6-Month T-bill
Let’s put it all together.
6-month T-Bills yield 3.70% on the open market, and MAS bills are suggesting stable yields.
The good news is that the supply of T-Bills is going up this auction to $6.8 billion (vs $6.5 billion the last auction).
The bad news is that Jerome Powell looks like he’s itching to cut interest rates at the Sep FOMC, and because of that the market is pricing in a higher probability of interest rate cuts going forward.
This may drive T-Bills yields down.
And the wildcard is how will investors bid for T-Bills.
If some of the non-competitive bidders swap over to competitive bidding, and submit low ball bids.
That could be a problem for T-Bills yields.
Given all of the above – I think there T-Bills yields will *probably* stabilise around the cut-off yields in the last auction (3.70%), with a bit of downside risk.
I would probably go with an estimated yield of 3.60% – 3.75% on the next T-Bills auction.
Do note that this is just an estimate, and actual yields can vary – especially if demand is very high, or bidding is unusual.
Should you submit a competitive or non-competitive bid for T-Bills? Will more investors submit competitive bids?
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.
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.
Note also that in the most recent T-Bills auction, non-competitive bids only saw 70% allotment rates, which is pretty low (means that if you applied for $100,000 non-competitive, you only get $70,000 T-Bills allotted to you):
Should you buy Fixed Deposit, Money Market Funds or T-Bills for highest yield / liquidity? Or Astrea 8 Bonds or Chocolate Finance?
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Best interest rates are 4.20% on first $20,000 if you deposit to Chocolate Finance (but note that this is not risk free) (as of July 2024)
I wrote a detailed review on Chocolate Finance, so do check if out if you are keen.
Long story short is that Chocolate finance pays 4.2% on the first $20,000, withdrawable instantly.
The funds are invested in a selection of bond and money market funds, and Chocolate Finance will top up any returns if they are lower than 4.2%.
To be clear this is not SDIC insured and not risk free.
So I leave it for investors to decide if you are comfortable with the risks (see my full review here).
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Astrea 8 PE Bonds yield 4.35% for 5 years (SGD), 6.35% for 6 years (USD)
The Astrea 8 PE Bonds are also open for IPO until 17 July (Wed).
I wrote a detailed review on the Astrea 8 PE Bonds, so do check it out if you are keen.
You’re looking at 4.35% for the SGD Class A-1 bonds, and 6.35% for the USD Class A-2 Bonds.
I myself will be applying for the Astrea 8 PE Bonds, and you can read my full analysis here.
Best 6 month fixed deposit yield is 3.40% with State Bank of India
If you prefer something risk free.
The best 6-month fixed deposit rate is 3.40% with State Bank of India.
T-Bills yields are higher though, so you’re better off just sticking with T-Bills.
Bank of China pays 3.50% on a 3 month Fixed Deposit
If you are fine with a shorter 3 month duration.
Bank of China is paying 3.50% for a 3 month Fixed Deposit.
Syfe Cash+ Guaranteed pays 3.60% for 6 months – but it is NOT SDIC insured
Investors can also consider Syfe Cash+ Guaranteed (who then deposits the cash into an institutional fixed deposit deposit).
This allows you access to institutional fixed deposit rates which are significantly higher.
If you do that, these are the latest interest rates on offer:
- 3 months – 3.8%
- 6 months – 3.6%
- 12 months – 3.5%
To be absolutely clear – Syfe Cash+ Guaranteed (and Chocolate Finance / Astrea 8 above) is NOT SDIC insured.
This means that unlike T-Bills (backed by Singapore government) or Fixed Deposit (SDIC insured up to the limits), they are NOT risk free.
Money Market Funds pay about 3.5% – 3.8% yields – have stabilised of late
Mari Invest is paying about 3.8% over the past 30 days for me.
The benefit with Money Market Funds like Mari Invest or Fullerton SGD Cash Fund is that you can get the money back any time with T+1 liquidity.
The rates are also competitive with T-Bills.
But do note that with Money Market Funds the yields are not locked in and will fluctuate.
For example if there is a surprise rate cut from the Feds you may see money market funds yields dropping.
Personally I hold a mix of funds in T-Bills and Money Market Funds for liquidity, and it’s been working out well for me so far.
So… T-Bills are a better buy than Fixed Deposits, and Money Market Funds?
I’ve summarised the interest rates for the various options below.
High yield savings accounts like UOB One are a good choice if you can satisfy the requirements, as they offer attractive yields with the flexibility to withdraw any time if you need.
After that – If T-Bills interest rates stay at 3.7%ish, they’re probably the next best choice if you want something risk free.
Money Market Funds are competitive though if you value the liquidity.
Instrument |
Approx Yield |
Maximum |
Risk Free? |
Astrea 8 PE Bonds |
4.35% |
Subject to balloting |
No |
4.2% |
$20,000 |
No |
|
UOB One |
4.00% |
$150,000 |
SDIC insured up to $100,000 |
T-Bills |
3.74% |
No maximum |
Yes |
Fixed Deposits |
3.25% |
No Maximum |
SDIC insured up to $100,000 |
Singapore Savings Bonds |
3.26% |
$200,000 per person |
Yes |
MariBank Account |
2.70% |
$100,000 |
SDIC insured up to $100,000 |
Mari Invest (or Fullerton SGD Cash Fund) |
3.5% – 3.8% |
No maximum |
No |
What to ask yourself – split cash between T-Bills, Fixed Deposit and Savings Accounts?
Some of you have asked how to split your cash between each of the following options:
- T-Bills
- Fixed Deposits
- Money Market Funds
- High Yield Savings Accounts
The way I see it, it’s broadly a 2 step process:
- How much liquid cash do you need?
- Rest goes into highest yield options – based on your comfort level on risk
Key question to ask – how much liquid cash do you need?
The key question to ask is how much liquid cash do you need, to meet your spending needs the next 6 months.
Think about how much you need to spend.
Then think about how much cash you are expecting to come in over the next 6 months.
The difference is the amount of liquid cash you would need.
So if all of your spending needs are going to be met by your salary, or if a big bonus is coming in – then you can actually run very little liquid cash.
Whereas if you’re going to buy a house, a new car, or a big renovation, you’ll need to plan ahead and have that amount of cash set aside in liquid cash.
Some guidelines on liquidity – better safe than sorry
As a general note I would say don’t be stingy with liquidity.
It’s one of those where it’s better to be safe than sorry.
So after you run the analysis above – you’ll want to buffer for unexpected scenarios too.
For example a big medical bill that you need to pay upfront, then claim from insurance after.
A big car repair bill.
A decline in stocks that leads you to want to buy some stocks / REITs.
A loss of job, meaning no income in the short term.
Things like that.
As a general note I would say you always want to have enough liquid cash on hand to cover 6 months worth of expenses, as a worst case scenario.
Liquid Cash should go into options accessible on short notice – savings accounts, fixed deposits, money market funds
Once you have the number above.
That amount of liquid cash, should go into options that you can get back with ideally a day or two’s notice.
That will include:
- High yield savings accounts (eg. UOB One, OCBC 360) – as a savings account you can withdraw any time
- Fixed Deposits – can break anytime by telling the bank, although you will lose accrued interest
- Money Market Funds – they are T+1 liquidity
High yield savings accounts tends to have the highest interest rates, although with the recent change UOB One Account now only pays 4.0% on $150,000.
That said it’s still higher than T-Bills, for a savings account you can withdraw any time.
So I still think this should be the priority – and you shouldn’t move on to fixed deposits or money market funds until you’ve maxxed out this option.
Singapore Savings Bonds is an outlier, because technically the money only comes back at the start of the next month.
In a worst case scenario if you just missed the redemption window, you might need to wait a whole month to get the money back:
I would say some Singapore Savings Bonds is fine as you can get the money back reasonably quickly, but don’t overdo it and put 90% of your liquid cash into Singapore Savings Bonds.
Rest of the cash goes into highest yield options – based on your comfort level on risk
Once you have the above – the rest just goes into the highest yielding option.
As of today, that’s probably T-Bills, followed by Money Market Funds like MariInvest or Fullerton SGD Cash Fund.
This article was written on 12 July 2024 and will not be updated going forward.
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can you analyze the upcoming reopened bonds?
What reopened bonds are you referring to?