So the next T-Bills auction is on 23 Nov.
Unfortunately, after closing as high as 4.07% a few auctions ago.
T-Bills yields have since plunged to 3.75%.
US interest rates have also plunged of late, both at the long and short end.
Will we see this spill over to T-Bills – and will T-Bills interest rates drop further?
Are T-Bills still worth buying?
Next T-Bills auction is on 23 Nov (Thursday) – (BS23123Z 6-Month T-bill)
First off – next 6 months T-Bills auction is on 23 Nov (Thursday).
This means that:
- If you’re applying in cash do apply by 9pm on 22 Nov 2023 (Wed)
- If you’re applying using CPF-OA do apply by 21 Nov 2023 (Tue).
What is the estimated yield on the next 6-month T-Bills auction? (BS23123Z 6-Month T-bill)
I’ll split the analysis up into 2 parts.
From a fundamentals perspective (economic growth, inflation, global interest rates etc), and a technical perspective (supply demand).
From a Fundamentals perspective:
T-Bills trade at 3.83% on the open market
6-month T-Bills are trading at 3.83% 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 – 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.
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 4.05%
The institutional only 12-week MAS Bills have been flat the past month or two – at 4.05%.
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).
BUT – Interest rates expectations have plunged
The big news this week was the soft US CPI print.
Notably, US core CPI came in at 0.2% month on month, down from the 0.3% estimate.
This fuelled speculation across the market that the Feds are done with their rate hike cycle, and what will follow in 2024 is interest rate cuts.
Market is now pricing in rate cuts as early as Jan 2024:
US Interest Rates have dropped across the board
This has led to a sharp drop in US 2 year interest rates.
From as high as 5.2% a few weeks back, to 4.8% today.
Sidenote that long term interest rates have plunged of late too.
Although this is more due to reduced supply from the Treasury.
But whatever the case – US 10 year interest rates have plunged from as high as 5.0% to 4.5% today.
And this time, I agree with the market on interest rate cuts to come…
For what it’s worth, I broadly agree with the market on what comes next – being interest rate cuts.
I think that going forward, economic growth is going to slow further.
And the risk for interest rates is tilted to the downside in 2024.
This does not bode well for T-Bills yields.
From a Technicals, supply-demand perspective
From a more micro perspective, what matters is the supply-demand dynamics.
Demand for T-Bills jumped the previous auction
In the latest T-Bills auction, demand for T-Bills jumped from $11.5 billion to $13.2 billion (14.8% increase).
This caused T-Bills yields to drop to 3.75%
This led to a sharp drop in T-Bills yields.
From 3.95% the past auction, to only 3.75%.
What about T-Bills demand 6 months ago?
Some of you have requested for a chart showing T-Bills demand from 6 months ago.
The thinking is that if T-Bills demand was very high 6 months ago, it stands to reason that a lot of that money would be maturing today – contributing to higher T-Bills demand.
I’m not entirely sure if I agree with that line of reasoning.
Because regardless of T-Bills demand, the T-Bills supply doesn’t change.
So if I didn’t get T-Bills 6 months ago, chances are I would have placed it into another instrument (unlikely to be 6 month duration), so the predictive ability of this data may not be high.
Whatever the case, I have plotted T-Bills Application Data with a 6 month lag below.
You can see how 6 months ago, T-Bills demand was about moderate-ish.
Going by this logic, T-Bills demand should remain moderate, which doesn’t really tally with the sharp jump in recent demand.
Median Yield – Average Yield spread jumped – a lot of “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”.
You can see how the spreads between median and average yield are very tight the past 3 auctions – the tightest it has been in 2023.
And with the most recent T-Bills auction, spreads completely blew out – close to the highest in 2023.
This indicates that there is very inelastic demand for T-Bills.
Investors are so desperate to get their hands on T-Bills that they are just submitting low-ball bids, to ensure they get an allotment.
If this keeps up, this is not good for T-Bills yields.
Estimated yield of 3.65% – 3.85% on the 6-month T-Bills auction? (BS23123Z 6-Month T-bill)
Let’s put it all together.
Market interest rates have dropped meaningfully – both at the short and long end.
Demand for T-Bills have been very strong the past few auctions, and spreads indicate that bidders are submitting low-ball bids.
Given all of the above – I’m actually not that optimistic for the next T-Bills auction.
Uncertainty is one of the highest it’s been in a while because of the volatility in interest rates, and T-Bills demand.
So I would probably go with an estimated yield of 3.65% – 3.85% on the next T-Bills auction.
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 (saw close to 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.
Are T-Bills still worth buying vs Singapore Savings Bonds or Fixed Deposit or Savings Accounts?
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Singapore Savings Bonds are a pretty attractive buy
I wrote a full article on Singapore Savings Bonds recently, so do check it out if you are keen.
Basically – this month’s Singapore Savings Bonds are attractive, and possibly the best for this interest rate cycle.
With the sharp drop in Singapore 10 year yields, next month’s SSBs are likely to be much less attractive.
You can look at the yields below:
- 3.30% yield for the next 6 years
- stepping up to 3.40% over 10 years.
That’s risk free yield locked in for 10 years, and you can get the money back anytime with no capital loss.
Considering CPF-OA pays 2.5%, and most people’s mortgages are below 3.40%, to be able to lock in 3.40% for 10 years is very attractive.
The big risk with T-Bills today is you don’t know where interest rates will be in 6 months when you need to refinance.
And Singapore Savings Bonds address that risk.
Best Fixed Deposit option? RHB Bank at 3.68%
The best Fixed Deposit option I could find today is RHB at 3.60% for 6 months.
Minimum of $20,000, that steps up to 3.68% if you are premier banking.
So if you don’t want to buy T-Bills, this is probably the next best thing.
Picking between T-Bills vs Singapore Savings Bonds vs Fixed Deposit vs Savings Accounts?
I would say if you want the highest short term yield, T-Bills are probably your best bet.
The drawback with T-Bills is the (1) lack of liquidity, and (2) short duration of 6 months.
So you can’t put all your money in T-Bills too.
Singapore Savings Bonds (SSBs) are great to address the duration point, locking in 3.40% for 10 years.
This month’s Singapore Savings Bonds are the best in all of 2023, and I myself would be applying for some.
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:
Singapore Savings Bonds
2.88% – 3.5%
But MariBank by Shopee has higher yields (2.88%) than GXS while being SDIC insured so it’s a no brainer.
While Chocolate Finance is technically not risk free (4.5% on $20,000), so I hesitate on putting too much in as well.
Am I applying for T-Bills?
This month’s Singapore Savings Bonds are very attractive, and I want to apply for a meaningful chunk.
But I have a fair bit of T-Bills from 6 months ago that are maturing too.
So I’ll probably still submit a competitive bid for T-Bills this auction, to park some cash in the interim.
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