The next 6-month T-Bills auction is on 4 July 2024.
Generally speaking – T-Bills yields have been steadily declining of late, due to market expectations of interest rate cuts in the second half of 2024.
This follow the trend of bank fixed deposits, which have also been on a steady decline.
However in the most recent 2 auction, T-Bills yields bucked the recent trend and jumped to 3.76% and 3.74% respectively.
Will this signal higher yields going forward? Or will T-Bills yields continue their downtrend?
Couple of questions I wanted to discuss today:
- What is the estimated yield on the next 6-month T-Bills auction? Will yields go up or down?
- Should you buy Fixed Deposit, Money Market Funds or T-Bills for highest yield / liquidity?
- Where to park cash today to maximise yield and liquidity?
Next T-Bills auction is on 4 July (Thurs) – BS24113N 6-Month T-bill
Next 6 months T-Bills auction is on 4 July (Thurs).
This means that:
- For cash or SRS applications, the deadline is 9pm on 3 July (Wed)
- For CPF-OA applications, the deadline is 9pm on 2 July (Tues)
Deadline for CPF-OA applications is same as cash applications – for DBS Bank only
Do note that for DBS Bank the deadline for CPF-OA applications (via ibanking) is the same as cash applications.
So there is no need to submit the application 2 days earlier if you’re applying with CPF via DBS.
However this is only for DBS Bank – for UOB/OCBC Bank you’ll still need to submit the CPF-OA application 2 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 3.73% on the open market
6-month T-Bills are trading at 3.73% on the open market, very close to where it closed at the most recent auction (3.74%).
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 up slightly at 3.91% (vs 3.87% at the previous auction)
The institutional only 12-week MAS Bills are up slightly to 3.91%.
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
For the record, this was market pricing on US interest rates at the previous auction.
And this is the latest market pricing.
Generally speaking there is almost no change at all in the pricing.
Market continues to price 2 interest rate cuts in 2024, with very similar probabilities across the board.
So this should not have a material impact on T-Bills (vs the previous auction) as it should already be priced in by the market.
From a Technicals, supply-demand perspective for T-Bills
From a more micro perspective, what matters is the supply-demand dynamics.
T-Bills Supply continues to drop to $6.5 billion (vs $6.6 billion at previous auction)
The bad news is that the amount of T-Bills on auction is dropping again.
We’re only seeing $6.5 billion of T-Bills on offer at this auction – vs $6.6 billion of T-Bills the previous auction.
It’s not a big drop, but it’s still down from the previous auction.
T-Bills supply has been a pretty decent predictor of T-Bills yields, so this is not a great sign.
Demand for T-Bills rises to $15.5 billion (vs $14.2 billion the last auction)
More bad news – the demand for T-Bills rebounded in the most recent auction.
$15.5 billion in applications, up 9% from $14.2 billion the previous auction.
Demand for T-Bills is close to cycle highs.
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”?
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.
I suppose again this ties back to the higher yields and higher demand.
6-month T-Bills yields stabilise at 3.74% (vs 3.76% the previous auction)
Despite all of this though.
T-Bills stabilised at 3.74% in the most recent auction (only slightly lower than 3.76% the previous auction).
This move seems to be driven largely by supply-demand dynamics (higher supply, lower demand), and not anything due to underlying fundamental factors though.
This makes it quite hard to predict the yields for this auction, as it’s ultimately going to come down to the bidding dynamics which tends to vary quite a bit from auction to auction.
Estimated yield of 3.70% – 3.80% on the 6-month T-Bills auction? BS24112W 6-Month T-bill
Let’s put it all together.
6-month T-Bills yield 3.73% on the open market, and MAS bills are suggesting stable yields (with a slight bias higher).
Market pricing on US interest rate cuts have not changed materially since the last T-Bills auction.
Unfortunately, the supply of T-Bills is dropping again this auction to $6.5 billion (vs $6.6 billion the last auction).
While demand for T-Bills continues to go up, and bidding data indicates low ball bids.
This means that the cut-off yields is going to ultimately come down to how investors bid in this auction.
Given all of the above – I think there T-Bills yields will *probably* stabilise around the cut-off yields we saw in the last auction (3.74%).
All things considered I would probably go with an estimated yield of 3.70% – 3.80% 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?
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.
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 83% allotment rates:
Should you buy Fixed Deposit, Money Market Funds or T-Bills for highest yield / liquidity?
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Best 6 month fixed deposit yield is 3.25% with RHB Bank
As at time of writing.
The best 6-month fixed deposit rate is 3.25% with RHB Bank.
If you’re premier banking that goes up to 3.30%.
The rate is competitive for 12 months, but for 6 months you’re probably better off just buying T-Bills.
Bank of China pays 3.50% on a 3 month Fixed Deposit
Note that 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 this, these are the latest rates on offer:
- 3.7% for 3 months
- 3.6% for 6 months
- 3.5% for 12 months
To be absolutely clear – Syfe Cash+ Guaranteed is NOT SDIC insured.
This means that unlike T-Bills (backed by Singapore government) or Fixed Deposit (SDIC insured up to the limits), Syfe Cash+ Guaranteed is NOT risk free.
Given that T-Bills yields are higher than Syfe Cash+, I would probably just stick with T-Bills for the peace of mind.
Money Market Funds pay about 3.5% – 3.8% yields – have stabilised of late
Mari Invest is paying about 3.7% 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 T-Bills 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.
I think if T-Bills interest rates stay at 3.7%ish, they’re probably the best choice compared to Fixed Deposits.
Money Market Funds are competitive though if you value the liquidity.
|
Instrument |
Approx Yield |
Maximum |
Risk Free? |
|
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 28 June 2024 and will not be updated going forward.
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