So the next 6-month T-Bills auction is on 14 May 2024.
After closing as high as 4.07% in late 2023.
T-Bills yields then dropped as low as 3.54%.
In the most recent auction however, T-Bills closed at 3.75% yield.
Bank fixed deposit rates have been steadily declining in 2024 – with the best fixed deposit only offering 3.25% for 6 months.
So at 3.75%, 6-month T-Bills are a much better buy than bank Fixed Deposits.
That said, the latest Singapore Savings Bonds offer very attractive yields at 3.33% – which given that this is locked in for 10 years and can be redeemed any time, is a decent alternative to T-Bills.
Couple of questions I wanted to discuss today:
- What is the estimated yield on the next 6-month T-Bills auction?
- Are T-Bills a better buy than Singapore Savings Bonds, money market funds or fixed deposits?
- Where to park cash today to maximise yield and liquidity?
Next T-Bills auction is on 9 May (Thurs) – (BS24109A 6-Month T-bill)
First off – next 6 months T-Bills auction is on 9 May (Thurs).
This means that:
- For cash or SRS applications, the deadline is 9pm on 8 May (Wed)
- For CPF-OA applications, the deadline is 9pm on 7 May (Tues)
Deadline for CPF-OA applications is same as cash applications – for DBS Bank only
I’ve noticed recently that with DBS Bank, the deadline for CPF-OA applications (via ibanking) is the same as cash applications, so there is no need to submit 1 day earlier if you’re applying with CPF.
This looks to be only for DBS Bank though, and for UOB/OCBC Bank you’ll still want to submit the CPF-OA application 2 days before.
What is the estimated yield on the next 6-month T-Bills auction? – (BS24109A 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 3.74% on the open market
6-month T-Bills are trading at 3.74% 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 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 (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 up to 3.90% (vs 3.83% at the previous auction)
The institutional only 12-week MAS Bills have gone up to 3.90% (was 3.83% 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 / higher yields.
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).
Latest market pricing on interest rate cuts – only 1 rate cut in 2024?
This week, Powell essentially confirmed that:
- It is unlikely the Feds will hike interest rates any further from here
- However they will not cut interest rates until they see inflation coming down (and recent data shows this is not the case)
With this news, the market is now pricing in 0% chance of another rate hike.
And only 1 interest rate cut in 2024 now.
So this is good for the 6-month T-Bills, as it suggests limited rate cuts in 2024.
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 $6.8 billion (vs $6.6 billion previous auction)
The good news is that the amount of T-Bills on auction is going up again.
$6.8 billion of T-Bills vs $6.6 billion of T-Bills the previous auction.
Amount of T-Bills is close to the highest it has been this cycle, and significantly higher than auction amounts in all of 2022/2023.
T-Bills supply seems to be a pretty decent predictor of T-Bills yields, so this is good sign.
Demand for T-Bills dropped to $14.4 billion (vs $16.0 billion the previous auction)
More good news – is that demand for T-Bills dropped quite a bit from record levels in the most recent auction.
$14.4 billion in applications, vs $16.0 billion the previous auction.
That being said, you can see how demand at $14.4 billion still remains very high compared to 2023 levels (although supply has gone up significantly as well):
There is a lot of money chasing after T-Bills today – and frankly it’s not hard to see why given bank fixed deposit rates keep dropping (UOB One account just dropped their interest rates to 4.0% in a pretty significant drop).
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 going down and remains at very low levels.
So the good news is that it seems investors are being quite aggressive (or rational) with their competitive bids.
You could argue this is because yields have stabilised of late which leads to more rational bidding, but whatever the case this is a good sign.
T-Bills yields down slightly to 3.74% (vs 3.75% the previous auction)
T-Bills yields dipped slightly the last auction.
Closing at 3.74%, versus 3.75% the previous auction.
Estimated yield of 3.70% – 3.80% on the 6-month T-Bills auction? (BS24109A 6-Month T-bill)
Let’s put it all together.
6-month T-Bills yields 3.74% on the open market, and MAS bills are suggesting an uptrend / stabilisation in yields.
Meanwhile demand for T-Bills has come down from record highs.
While the supply of T-Bills is going up this auction to $6.8 billion.
Bidding also looks to be pretty rational the past few auctions, given the stabilisation in yields.
Market is now only pricing in 1 interest rate cut in 2024, which should be bullish for yields.
Given all of the above – I think there is a chance that T-Bills yields may go up this auction (vs 3.74% the last auction).
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 if demand is very high, or bidding is funky.
Singapore Savings Bonds are actually very attractive this month – 3.26% yield for first year
Note that this month’s Singapore Savings Bonds are actually very attractive.
Yields on the Singapore Savings bonds are:
- 3.26% for the first 6 years
- 3.33% for 10 years
This is very attractive and higher than most fixed deposit yields.
To the point that I would expect very strong demand for Singapore Savings Bonds this month.
Note that each person can apply for up to $200,000 Singapore Savings Bonds.
But given what is likely to be strong demand for these Singapore Savings Bonds, I’m not sure you’ll see full allotments.
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Those using UOB One Account may need to top up another $50,000 in May to enjoy the full interest
Gentle reminder that with the changes to UOB One Account interest rate, you need to top up to $150,000 to enjoy the full 4.0% interest rate.
It’s frankly up to you if you still want to use UOB One Account after this.
I’ve calculated the effective interest rates below.
On the full $150,000 it’s 4.00%, for money you can withdraw any time.
Given that it’s still higher than T-Bills, I still went ahead to top up my UOB One account to $150,000.
But do note the risk that UOB can further slash the interest rates any time, whereas with T-Bills you’re “locking in” yields for the next 6 months.
If you’re really concerned about this and want to “lock in” yields for longer, do consider the Singapore Savings Bonds above which locks in for 10 years, and can be redeemed any time.
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?
Fixed Deposit rates keep going down – best 6 month yield is 3.25% with RHB Bank
The Best Fixed Deposit option I found is 3.25% (3.30% for preferred banking) for 6 months with RHB Bank.
So if you don’t want to buy T-Bills, but want something risk free (below the $100,000 SDIC limit), this is probably the next best thing.
Yields are much, much lower vs the latest T-Bills though, so I don’t think fixed deposit is that attractive any more.
Bank interest rates have been on a steady decline the past few months, and nothing has changed so far.
Syfe Cash+ Guaranteed pays 3.75% – but it is NOT SDIC insured
I wrote a more detailed article on this in the Fixed Deposits post.
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 months and 3.75% for 6 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.
This is made clear by Syfe on their website.
Given that yields are very close to T-Bills, you might as well just stick with T-Bills which is backed by the Singapore government and risk free.
Money Market Funds pay about 3.5% – 3.8% yields – have stabilised of late
Money Market Funds 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.
Do note that with T-Bills the yields are not locked in and will fluctuate – so 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?
A lot of you have asked what to consider when deciding how much cash to split 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?
I would say the key question to ask is how much liquid cash 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
Number (1) 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.
But 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 / set aside sufficient liquidity.
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.
But Money Market Funds are technically not risk free, so I know not everyone is comfortable putting their entire nest egg into something that is not zero risk.
In which case you can consider overweighting T-Bills.
Picking between T-Bills vs Money Market Funds vs Singapore Savings Bonds vs Fixed Deposit vs Savings Accounts?
I would say if you want the highest short term yield, T-Bills / Money Market Funds are probably your best bet today.
The benefit of T-Bills is that it’s risk free, and you lock in the rates for 6 months, but at the cost of liquidity.
The benefit of Money Market Funds is that you can get the money back anytime with T+1 liquidity, but it’s technically not risk free, and the rates fluctuate over time.
Where am I parking my cash for liquidity?
Personally, I’ve been parking my cash in a mix of the following for liquidity:
|
Instrument |
Approx Yield |
Maximum |
Risk Free? |
|
UOB One |
4.00% |
$150,000 |
SDIC insured up to $100,000 |
|
Singapore Savings Bonds |
3%+ |
$200,000 |
Yes (backed by Singapore government) |
|
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 |
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Pretty much a no brainer if you have spare cash and want to generate a higher yield without any lockup or any requirements to fulfil.
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