6-month T-Bills yields drop to 3.70% – Demand for T-Bills continue to go up (4 July 2024 Auction Results)

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In my weekend article, I estimated a yield of 3.70% – 3.80% for the upcoming 6-month T-Bills auction.

The auction results are out at 3.70% cut off yield, at the bottom end of my projected range.

But look under the surface and it doesn’t look great – demand continues to go up, while bidding data indicates lowball bids being submitted from investors.

If this continues it suggests that T-Bills yields may trend lower going forward.

Let’s take a closer look at auction numbers.

  

6-month T-Bills yields drop to 3.70% (4 July 2024 Auction Results)

The cut-off yield for the latest T-Bills auction is set out below.

This round of 6-month T-Bills is issued at 3.70% yield.

Note that this is down from 3.74% in the previous auction.

T-Bills yields since Jan 2023 are charted in graph form below.

You can see how with the past 3 auctions, T-Bills have generally settled into the 3.7 – 3.8% range.

However, there is a clear downtrend in the past 3 auctions.

And with the most recent auction, T-Bills have fallen to 3.70%, which is right at the bottom of this range.

Demand for T-Bills rises to $15.6 billion (vs $15.5 billion the last auction)

Demand for T-Bills this auction came in at $15.6 billion.

This is only slightly higher than the $15.5 billion we saw in the previous auction.

You can see this charted below – T-Bills demand is close to the highest it has been in the past 18 months.

Which frankly, is not surprising given that other alternatives such as bank fixed deposit rates keep falling.

However, not a good sign if you’re hoping for higher T-Bills yields.

Auction amount for T-Bills dropped to $6.5 billion (vs $6.6 billion the previous auction)

Do note that the T-Bills auction amount continued to drop this auction.

Only $6.5 billion of T-Bills on offer, down slightly from the $6.6 billion the previous auction.

This coupled with the higher demand probably explained a good deal of the drop in yields.

So if you want to see a rise in T-Bills yields, you’ll probably want to see larger auction amounts going forward.

Bidding data indicates more low-ballers for T-Bills?

The spread between the median and average yield tells you how many “low-baller” bids there were.

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”.

Interestingly – you can see how the spreads shot up quite sharply this auction.

The average yield on successful bids was only 2.81%, which is a lot lower than the 3.08% in the previous auction.

Why this is the case is not so clear – perhaps due to CPF-OA bidders, since this T-Bills auction is right smack at the start of the month and great for CPF-OA buyers?

Why did T-Bills yields drop to 3.70%?

Putting everything together.

At this auction we see:

  1. Slightly higher demand for T-Bills
  2. Slightly lower supply of T-Bills
  3. More “lowball” bidding from investors

In that context, the drop in T-Bills yields to 3.70% does make sense really.

On the flipside, it also suggests that had the auction amount been higher at $7 billion+, we might have seen yields stabilise in the mid 3.7% range.

How do you know if you have been allotted T-Bills for this Auction?

If you applied Non-Competitive Bid, you will get 70% allotment of whatever you applied for (down from 83% the last auction).

Basically – If you applied $100,000, you get $70,000 worth of T-Bills allotted.

That’s frankly not that high, and I wonder if some of the non-competitive bidders will switch to competitive down the road.

If you applied Competitive Bid, then:

Full allotment if you applied below 3.69% and below.

25% allotment (approximately) if you applied 3.70%

No allotment if you applied 3.71% and above.

If you forgot what you bid, the easiest way is to check if you have any refund from your bank tonight.

Some banks like OCBC will also issue you a confirmation note (but DBS doesn’t).

 

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4 COMMENTS

  1. Thanks FH .yes will be going competitive next time.
    Another issue is how user unfriendly the system is with working out the refund amount and interest as the interest seems to be paid upfront. Just can’t work out the maths even with cgpt of how much refunded and how much interest . Any ideas on how to do this?

    • Unfortunately no. The calculations are slightly complex, and for now the solution is to either (a) trust the bank gets it right, or (b) work through the arcane calculations.

  2. Per your suggestion to those currently submitting non-competitive bids, to get higher allocation, they may consider submitting competitive bids. Do not these people have no experience or confidence on what bid to submit.

    Please emphasize to all readers that if they submit competitive bids, do be rational and responsible, using current yields rather than submit low bids just to secure 100%!

    These low ballers don’t realise they are pulling the yields down, no wonder yields are trending down.

    Especially the CPF OA applicants are spoiling the market.

    • Yeah agree with this. I will put a note on this in the next article, but let’s see how bidding turns out.

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