In my weekend article, I estimated a yield of 3.55% – 3.70% for the upcoming 6-month T-Bills auction.
The auction results are out at 3.76% cut off yield, well above the top of my projected range.
This has sharply bucked the trend of declining T-Bills yields that we saw in the past 5 T-Bills auctions.
What is driving this sharp rise in T-Bills yields?
Let’s dive into the numbers.
6-month T-Bills yields jump to 3.76% (6 June 2024 Auction Results)
The cut-off yield for the latest T-Bills auction is set out below.
This round of 6-month T-Bills are issued at 3.76% yield (which is a nice jump from 3.65% the previous auction).
T-Bills yields since late 2022 are charted in graph form below.
You can see how T-Bills yields have generally stabilised around the 3.7 – 3.8% range for 6 auctions in a row.
And then in the previous auction T-Bills yields have dropped out of that range to 3.65%.
This auction however – T-Bills yields have recovered back to the 3.7 – 3.8% range.
Demand for T-Bills drops further to $14.2 billion (vs $14.5 billion the last auction)
Demand for T-Bills this auction came in at $14.2 billion, slightly lower than the $14.5 billion the previous auction.
You can see this charted below – it’s the lowest level of demand for T-Bills for the past 6 auctions.
Some of you have suggested than when there is an auction with a low cut-off yield for T-Bills (like the last auction where it closed at 3.65%).
We see lower demand the next auction, which causes yields to go up, which causes demand to go up, sending yields down and so on.
It’s not easy to confirm this definitively as it’s very hard to strip out all the other market factors going on.
But it’s definitely one plausible reason for the drop in demand (and corresponding rise in yields).
Auction amount for T-Bills went up to $7.1 billion (vs $7.0 billion the previous auction)
Do also note that the T-Bills auction amount was $7.1 billion this time around, which is slightly higher than the $7.0 billion in the previous auction.
This coupled with the drop in demand probably accounted part of the rise in yields.
Less low-ballers for T-Bills this auction?
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”.
Spreads have actually stabilised for 4 auctions in a row.
Before jumping quite noticeably in the most recent 2 auctions.
This has come down slightly in the most recent auction – another reason for the higher yields.
Why did T-Bills yields jump from 3.65% to 3.76%?
Looking at the above, it looks like the rise in yields is mainly due to auction specific demand/supply dynamics rather than anything fundamental.
There was a larger auction size, less demand for T-Bills, and more rational bidding.
And so T-Bills cut-off yields went up as a result.
You can see how market yields on the 6-month T-Bills yields closed at 3.64% yesterday, so there doesn’t look to be any major fundamental driver for this move (otherwise we would have seen some move in the market pricing).
How do you know if you have been allotted T-Bills for this Auction?
If you applied Non-Competitive Bid, you will get 91% allotment of whatever you applied for (down from 100% the last auction).
Basically – If you applied $100,000, you get $91,000 worth of T-Bills allotted.
If you applied Competitive Bid, then:
Full allotment if you applied below 3.75% and below.
91% allotment (approximately) if you applied 3.76%
No allotment if you applied 3.77% 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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Hi! Is it possible that the t-bill refund amount including interest is calculated wrongly for non-competitive bids? I used cash, should be allocated 91% at 3.76% p.a but the refund I got seems to be only 2.84% p.a.
Quite unlikely – but not impossible. Did you run the numbers properly, the T-Bills calculation is not so straightforward. If indeed there is an issue after double checking – suggest to check with your bank directly.