6-month T-Bills Auction on 6 June – Will interest rates continue to drop? Should you buy T-Bills, Fixed Deposit, Singapore Savings Bonds or Money Market Funds?

2

 

The next 6-month T-Bills auction is on 6 June 2024.

T-Bills yields have been steadily declining of late.

From as high as 3.8% just a couple of auctions ago (late March).

T-Bills yields have fallen to 3.65% in the most recent auction.

Couple of questions I wanted to discuss today:

  1. What is the estimated yield on the next 6-month T-Bills auction?
  2. Are T-Bills a better buy than Fixed Deposits, Singapore Savings Bonds, or money market funds?
  3. Where to park cash today to maximise yield and liquidity?

 

Next T-Bills auction is on 6 June (Thurs) – BS24111X 6-Month T-bill

Next 6 months T-Bills auction is on 6 June (Thurs).

This means that:

  • For cash or SRS applications, the deadline is 9pm on 5 June (Wed)
  • For CPF-OA applications, the deadline is 9pm on 4 June (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? – BS24111X 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 3.64% on the open market

6-month T-Bills are trading at 3.64% 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 have gone down slightly to 3.86% (vs 3.87% at the previous auction)

The institutional only 12-week MAS Bills have gone down slightly to 3.86% (was 3.87% at the previous auction).

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 downwards bias).

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).

From a Technicals, supply-demand perspective for T-Bills

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

T-Bills Supply is going up to $7.1 billion (vs $7.0 billion at previous auction)

The good news is that the amount of T-Bills on auction is going up again.

$7.1 billion of T-Bills vs $7.0 billion of T-Bills the previous auction.

This is the highest amount of T-Bills on offer at any auction this cycle.

You can see the chart below – amount of T-Bills on offer at each auction has increased massively from where it was just 12 months ago.

T-Bills supply has been a pretty decent predictor of T-Bills yields, so this is good sign.

Demand for T-Bills dropped to $14.5 billion (vs $16.3 billion the previous auction)

It’s not very clear why.

But demand for T-Bills dropped quite noticeably in the most recent auction.

$14.5 billion in applications, vs $16.3 billion the previous auction.

That’s an 11% drop in demand, and is noticeable.

That being said – T-Bills demand remains very strong relative to 2022/2023 demand, although you can see from the chart above that the supply has also gone up.

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 continued to be quite high.

This is not a good sign – indicates a lot of inelastic demand or lowball bids coming in.

T-Bills yields down slightly to 3.65% (vs 3.70% the previous auction)

As shared above – T-Bills yields continued their downtrend in the most recent auction.

Final cut-off yield was 3.65%, vs 3.70% at the previous auction.

Again, not good news.

Estimated yield of 3.55% – 3.70% on the 6-month T-Bills auction? BS24111X 6-Month T-bill

Let’s put it all together.

6-month T-Bills yields 3.64% on the open market, and MAS bills are suggesting a slight downtrend in yields.

There has also been a clear downtrend in T-Bills yields for the past 7 auctions.

The bright side though, is that supply of T-Bills is going up slightly to $7.1 billion (vs $7.0 billion).

Demand also has come down of late (although data suggests low-ball bids continue to come in).

Given all of the above – I think there is a chance that T-Bills yields may either stabilise around the levels hit in the last auction (3.65% the last auction).

All things considered I would probably go with an estimated yield of 3.55% – 3.70% 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.

Which is a better buy – T-Bills vs Money Market Funds, Singapore Savings Bonds or Fixed Deposit or Savings Accounts?

 

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Fixed Deposit rates keep going down – best 6 month fixed deposit yield is 3.25% with RHB Bank

As at time of writing.

The best fixed deposit rate is 3.25% with RHB Bank for 6 months.

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.

Syfe Cash+ Guaranteed pays 3.75% – but it is NOT SDIC insured

If you’re slightly more adventurous – you can use 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 – 3.75% for 3 or 6 months, 3.6% for 12 months:

To be absolutely clear though, 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 6-month yields are very close to T-Bills, 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 3.74% 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.

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:

  1. T-Bills
  2. Fixed Deposits
  3. Money Market Funds
  4. High Yield Savings Accounts

The way I see it, it’s broadly a 2 step process:

  1. How much liquid cash do you need?
  2. 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:

  1. High yield savings accounts (eg. UOB One, OCBC 360) – as a savings account you can withdraw any time
  2. Fixed Deposits – can break anytime by telling the bank, although you will lose accrued interest
  3. 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.

Where am I parking my cash?

Personally, I’ve been parking my cash in a mix of the following:

Instrument

Approx Yield

Maximum

Risk Free?

UOB One

4.00%

$150,000

SDIC insured up to $100,000

T-Bills

3.65%

No maximum

Yes

Singapore Savings Bonds

3%+

$200,000 per person

Yes

MariBank Account

2.88%

$100,000

SDIC insured up to $100,000

Mari Invest (or Fullerton SGD Cash Fund)

3.5% – 4.0%

No maximum

No

 

This article was written on 31 May 2024 and will not be updated going forward.

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2 COMMENTS

  1. Here’s my simple suggestion for youngsters:

    Buy T-bills every 2/4 weeks, invest the same amount, for 6 months. Then you’ll have 13 to 14 tranches of T-bills. From then on add a little bit you when you re-invest the T-bills reaching maturity. Do that until the total is about enough to fund 6 months of essential expenses. From then onwards (if you can) add a little bit every 2/4-weeks (as the T-bills mature). This will give you a safety net if something bad happens (like a period of unemployment or serious illness).

    This is what we call a “Bond Ladder”. It’s the safest investment you’ll ever have. After you’ve got that in place consider dollar-cost averaging into an index fund. Aim for 5% to 10% of your take home pay, more is better. When your index fund investment is worth the same as your bond ladder (safety net), which might take 5 to 7 years (assuming average returns), you’ll be in a good position to consider some riskier (higher return) investments.

    Sounds simple, but most people won’t do it. Just “pay yourself first” and avoid expensive consumer credit and don’t worry about impressing other people. You’ll come out ahead in the long run.

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