So the auction results for the latest T-Bills are out!
The latest 6 month T-Bills are issued at 3.9% yield per annum:
Latest T-Bills at 3.9% yield (24 Nov 2022 Auction Results)
Diving deeper into the numbers.
Out of an issue size of $4.8 billion, $11.9 billion worth of applications was received.
This was 2.48 times subscribed.
Non-competitive applications see 77.78% allotment.
Which means that if you applied $10,000 non-competitive, you would get $7,700 T-Bills issued at 3.9% yield (rounded off to 100).
Why are interest rates for T-Bills going down?
Okay so the million dollar question – why are interest rates going down?
I’ve set out the auction results for all the T-Bills since September 2022 below.
You can see that the cut-off yield steadily increased from 2.99% in September to a peak of 4.19% on 27 October 2022.
Since then, the cut-off yield has dropped steadily from 4.19% to 3.9% today.
Is this because of unsophisticated retail applying for T-Bills?
Now I know many people are going to point to that fact that it is your mom and pop retail bidding ridiculously low yields (especially with their CPF-OA money) that is driving the yields down.
But let’s take a closer look at the numbers.
The amount of applications peaked at $14.2 billion for the 10 November T-Bills auction.
For the latest auction, it came down to $11.8 billion.
The fact that the amount of applications came down quite a bit from the 10 November auction, while yields still went down, indicates to me that it may not just be “dumb” retail bidding low-ball numbers.
It might just be that interest rates are coming down.
A quick check against the 10 year SGS yield sort of backs up this theory.
You can see that the 10 year SGS peaked at 3.63% on 21 October 2022, around the same time that the T-Bills yield peaked:
A check against the 6 month T-Bills yield also kind of backs up their theory, as you can see the yields coming down quite a bit since 10 Nov:
Looking at US Treasury yields further backs up this theory, as you see a notable drop in yields around 10 Nov when the recent “dovish” CPI print came out, and investors started to price in a more dovish Fed:
I mean sure, some of this is likely due to heavy retail demand skewing the yields for T-Bills.
But I do think some of the blame lies on the falling global interest rate climate since the latest “dovish” US CPI print.
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Have interest rates peaked for this cycle?
Which brings us to perhaps the more interesting question.
Have interest rates peaked for this cycle?
The answer to this is not so straightforward, and requires a discussion on the Federal Reserve, and their priority between (1) fighting inflation and (2) preventing a deep recession.
I promise to share deeper views on that this weekend.
But for now – the short answer is that I would be surprised if this is the peak for interest rates this cycle.
I do think we go higher for longer before all this is over.
But who knows… we’ll see.
I bid competitive this time around… and got nothing…
As shared in the weekend articles, I did have a fear that interest rates would go down for this round of T-Bills.
So I switched over to competitive bidding, and all my bids were at 4.0% or higher.
So I received no T-Bills this time around.
In any case, there are 3 more T-Bill auctions coming in December:
And Fixed Deposit pays up to 3.9% these days, which does make it a very attractive alternative to T-Bills, especially given that Fixed Deposits can be broken early.
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Hi FH,
Been following your series of T-Bill articles for some time now. I suspect that it’s the game theory approach to competitive bidding – if a person intends to bid non-competitively, he would be better off placing a competitive bid at 0% anyways (or 2.51% using CPF-OA monies for discussion purposes, technically…) – because this ensures that he gets allocated the full amount without caring about the interest rate – which is exactly the aim of non-competitive bidding (since the interest rate is unknown anyway).
This makes sense because the allocation for non-competitive bids seem to be getting higher – typical game theory at work with non-competitive bidders rocking the boat since there’s an easier way to get what they want.
Yeah, this is definitely possible.
Although it’s not easy to verify this theory, without more granular information from MAS.
Personally I suspect its a combination of factors. Yes the auction bidding process and retail money is skewing the numbers, but the short term dip in interest rates also plays a part.