6-month T-Bills Auction on 7 Dec – Will interest rates cross 4.0% or drop further? Refunds from Singapore Savings Bonds going into T-Bills?

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So the next T-Bills auction is on 7 Dec.

Unfortunately, after closing as high as 4.07% a few auctions ago.

T-Bills yields have since dropped to 3.80%.

US interest rates have also dropped of late, both at the long and short end – as the market starts to price in 2024 interest rate cuts.

While the recent Singapore Savings Bonds was 1.9x oversubscribed, and only saw $20,000 allotments – meaning a lot of cash being refunded and looking for a home.

Are we going to see this affect T-Bills yields – and will T-Bills interest rates drop further?

Next T-Bills auction is on 7 Dec (Thursday) – (BS23124S 6-Month T-bill)

First off – next 6 months T-Bills auction is on 7 Dec (Thursday).

This means that:

  • If you’re applying in cash do apply by 9pm on 6 Dec 2023 (Wed)
  • If you’re applying using CPF-OA do apply by 5 Dec 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 (1) fundamentals perspective (economic growth, inflation, global interest rates etc), and a (2) technical perspective (supply-demand).

From a (1) Fundamentals perspective:

T-Bills trade at 3.8% on the open market

6-month T-Bills are trading at 3.8% 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 4.04%

The institutional only 12-week MAS Bills have been flat the past month or two – at 4.04%.

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

But over the past few weeks / months.

The market has started to price in more interest rate cuts in 2024.

You can see this leading to a sharp drop in 2 year US Government Bonds – from as high as 5.2% in Oct to 4.65% today.

The drop is even more stark when you look at long term interest rates.

US 10 Year yields have dropped from 5.00% in early Nov to 4.3% today.

And this time, I agree with the market on interest rate cuts to come…

For what it’s worth, I agree with the market on what comes next – being interest rate cuts.

I think that going forward, economic growth is going to slow further in 2024.

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 stabilised the previous auction

In the latest T-Bills auction, demand for T-Bills stabilised at $13.0 billion (vs $13.2 billion the previous auction).

This is a good sign, as it indicates demand coming down from record levels.  

This caused T-Bills yields to rise to 3.80%

This led to a rise in T-Bills yields.

From 3.75% the past auction, to 3.80%.

Singapore Savings Bonds Refund money will go into T-Bills instead?

However, most of you would probably have heard about how last month’s Singapore Savings Bonds were some of the most attractive SSBs ever.

Even I myself wrote on it, and submitted an order for $50,000 worth of SSBs.

This led to a lot of demand for SSBs, which was:

  • 1.9x subscribed
  • Allotment limit of only $20,000

I myself applied for $50,000 of the Singapore Savings Bonds and only got allotted $20,000, which means a $30,000 refund.

This means that there are a lot of fellow investors out there who were refunded Singapore Savings Bonds money this week, and are looking for a place to park that cash.

To the tune of $900 million in fact.

And if this horse is smart enough of thinking of putting that SSB refund money to work on T-Bills, you bet that a lot of other investors may think the same way.

This makes me very nervous for T-Bills demand the next auction.

There is a chance a lot of that SSB refund money might be going into T-Bills this auction.

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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, which drops quite a bid into mid December.

Going by this logic, T-Bills demand should remain moderate/down, which doesn’t really tally with recent data (which shows a rise in 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”.

And with the most recent 2 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.

Even if this skews yields to the downside.

In the most recent auction, spreads went down a bit, but not by a lot.

This indicates demand for T-Bills still remains high, and investors are willing to submit low-ball bids to ensure they get an allotment.

Estimated yield of 3.65% – 3.85% on the 6-month T-Bills auction? (BS23124S 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 has stabilised, but remains very strong, and spreads indicate that bidders are submitting low-ball bids to ensure an allotment.

While a lot of retail investors would have been refunded Singapore Savings Bonds money this week because of the $20,000 allotment limit.

Which means there is a possibility that some of that $900 million in refund money is going into the next T-Bills auction.

Given all of the above – I’m actually not that optimistic for yields at this next T-Bills auction.

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?

Singapore Savings Bonds are not an attractive buy

Because of the sharp drop in 10 year interest rates this month.

Singapore Savings Bonds are not as attractive as they were last month.

You’re looking at about 3%ish first year yield.

Personally I have enough Singapore Savings Bonds for now, and I’m going to be skipping this month’s Singapore Savings Bonds.

Although investors who want to lock in yields can consider SSBs as an alternative to T-Bills.

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 are not as attractive anymore after the drop in 10 year interest rates, but still a viable option if you want to lock in yields long term.

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%+

$200,000

MariBank Account

2.88% – 3.5%

$75,000

 

Maribank (2.88%) vs GXS (2.68%) or Chocolate Finance (4.5%) for cash

In the past I also tried GXS (2.68%) and Chocolate Finance (4.5%) for cash.

But MariBank by Shopee has higher yields (2.88%) than GXS while being SDIC insured so it’s a no brainer.

The 2.88% offer has also been extended to 31 March 2024.

While Chocolate Finance is technically not risk free (4.5% on $20,000), so I hesitate on putting too much in as well.

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Am I applying for T-Bills?

As shared above, I have $30,000 refund from Singapore Savings Bonds that just came back this week.

I also have a lot of T-Bills maturing over the next few weeks that I will likely roll over into T-Bills given they have some of the most competitive and fuss free short term yields.

I will however be submitting a competitive bid just in case there are any freak results.

 

This article was written on 1 Dec 2023 and will not be updated going forward.

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4 COMMENTS

  1. If I click the Moomoo link above to sign up a new acc, will you get referral benefits? If not, any Moomoo existing users here can you pls provide your referral code below?

  2. What is a wise competitive bid to put in for the upcoming 7Dec T bill? Never done competitive before. Read somewhere it’s to put as 50% of the last T bill yield. Also chance of getting full allotment is lower vs non-competitive bid

    • I never understood putting a competitive bid at a low level just to ensure allotment. If everyone thought this way we would be seeing much lower yields.

      I would say submit a reasonable yield, that you would not want to buy if it’s below that yield.

      So if the yield is below 3.6% you think you can just put it into a fixed deposit instead, then that’s roughly where you might want to bid.

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