In my weekend article, I predicted that 6-month T-Bills would continue their downtrend due to market expectations over interest rate cuts.
And while I was correct on the trend.
I was wildly incorrect on the magnitude of the move.
Because while I estimated a range of 3.55% – 3.65% on the 6-month T-Bills auction.
The final cut-off yield came in way below that at 3.40%.
While demand soars to a record high of $18 billion, far higher than any other auction we saw this cycle.
Let’s take a closer look at the numbers.
6-month T-Bills yields drop to 3.40% (BS24115A 6-Month T-bill)
You can see the cut-off yield for the latest T-Bills auction below.
At 3.40%, this is a huge drop from the 3.64% we saw at the previous auction.
T-Bills cut-off yields since Jan 2023 are charted below.
You can see how the massive drop in yields to 3.40% takes T-Bills yields to the lowest in the past 18 months.
The drop was so huge I even had to adjust the vertical axis for it to display properly.
Demand for T-Bills soars to $18.0 billion (vs $15.7 billion the last auction)
Demand for T-Bills absolutely soared to record levels.
We saw $18.0 billion in applications for T-Bills at this auction.
That’s up almost 15% from the previous auction’s $15.7 billion.
Charted below – again T-Bills demand soars to the highest we have seen this cycle.
Bidding data indicates less 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”.
Spreads actually went down slightly this auction, so it’s hard to argue this drop was due to a huge amount of low bids.
Auction amount for T-Bills is flat at $6.8 billion
It’s worth noting that the amount of T-Bills on offer this auction was $6.8 billion, no change from the previous auction.
So the sharp drop in T-Bills yields looks largely down to the increase in demand, and market expectations over interest rate cuts going forward.
Why did T-Bills yields drop to 3.4%?
At this auction we see:
- Hugely higher demand for T-Bills
- flat supply of T-Bills
- Less “lowball” bidding from investors
So frankly it looks like the drop in T-Bills yields is driven by fundamental reasons (market expectations of more interest rate cuts in 2024, and increase in demand).
Did I get any T-Bills?
I myself applied for the 6-month T-Bills, but using a competitive bid.
For obvious reasons I did not submit a competitive bid below 3.40% (I won’t spoil market like that lah).
So I did not get any allocation of the T-Bills.
At 3.40% though, actually alternatives like Money Market Funds or Syfe Cash+ start becoming quite attractive, and I’ll take a closer look at cash alternatives this weekend.
How do you know if you have been allotted 6-month T-Bills for this Auction?
If you applied Non-Competitive Bid, you will get 100% allotment of whatever you applied for (up from 70% the last auction).
If you applied Competitive Bid, then:
Full allotment if you applied below 3.39% and below.
43% allotment (approximately) if you applied 3.40%
No allotment if you applied 3.41% 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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seems that some bids using cpf funds are quite irrational, being below the breakeven yield (3.33%) for loss of 8 months’ cpf interest, given that median yield was 3.3%?
the irrationality is baffling when u consider that the average bids are even lower at 2.85% (meaning some bids are lower than 2.85%)???