Latest T-Bills issued at 4.00% yield – Why are interest rates going down? (18 January 2023 Auction Results)

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Latest T-Bills auction results are out!

And unfortunately, the T-Bills yields look to be tracking US interest rates and going down.

In my weekend article I estimated fair value of 4.1% – 4.2% for the T-Bills (give or take 0.1% either way).

Final cut off yield came in at 4.00%, definitely on the lower end of the range here.

   

18 January 2023 T-Bills Auction Results – 4.00% cut-off yield

Diving into the numbers.

Cut-off yield is 4.00%.

This means that everyone will get T-Bills at 4.00% regardless of whether you applied for a competitive or non-competitive bid.

Allotment Results for 18 January 2023 T-Bills – Full Allotment for non-competitive bids

Just like the 5 January 2023 T-Bills, you’re looking at full allotment for non-competitive applications again.

Practically speaking, this means that:

If you applied non-competitive, you get 100% allotment of whatever amount you applied for (at 4.00%).

If you applied competitive below 4.00%, you get 100% allotment (at 4.00% yield).

If you applied competitive at 4.00%, you get 16% allotment.

If you applied competitive above 4.00%, you get nothing.

Application amounts for T-Bills increased drastically to $13.1 billion

Interestingly, the total amount of applications for the T-Bills increased quite drastically to $13.1 billion.

The previous auction was just $12 billion, so this is a $1.1 billion increase which is noteworthy.

I charted the application amounts going back to July 2022 below.

You can see how the application amount of $13.1 billion this time around is the second highest in the past 6 months (only below the record $14.2 billion on 10 Nov 2022)

What does the T-Bills bidding data tell us? More low-ballers?

That said, the bidding data is very, very interesting.

Here’s the statistics for the recent 18 January 2023 auction.

Here’s the statistics for the previous 5 January 2023 auction.

What stands out – the average yield.

Average yield was 3.77% the previous auction, plunging to a ridiculously low 2.71% this time around.

Whereas median yield of 3.90% is very close to the 4.00% from the previous auction.

For those less familiar with statistics:

  • Average is calculated by adding up all the bid values and dividing by the number of the bids
  • Median is the middle bid

The advantage of the median, is that it removes extreme measurements from the data set.

So the fact that average yield plunged so drastically, while median yield is about the same, indicates that bidders on the extreme ends have adjusted their bids down.

Ie. Either the low bidders are bidding lower, or the high bidders are bidding lower.

Or both.

 

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What does this mean? Why did average yield drop so much?

I suppose one possible reason could be from the CPF-OA bidders.

If you spend an hour queueing at the bank to buy T-Bills with CPF-OA, you’re going to want to get an allotment no matter what.

And getting allotment at 4.2% vs 4.0% really doesn’t matter all that much when CPF-OA pays only 2.5%.

So you might bid competitive at say 2.00%.

Another possible reason is that maybe people were submitting ridiculous 8.00% bids previously.

And now they’re becoming more realistic with their bids?

Which exactly it is – only MAS will know.

Interest rates are trending down though… Don’t blame the low-ballers

But just before you start hating on all the low ballers, let me just put it out there that I don’t think these low ballers skewed the yields all that much.

I think by and large most of the bidders are still submitting quite rational bids (as you can see from the small move in median yields down).

And the trend in US interest rates has most definitely been down the past few weeks.

Here’s the US 2 Year – plunging from 4.45% the start of the year to 4.18%.

For T-Bills interest rates to come down is fair.

What did I bid for this round of T-BIlls? What will I do next?

I bid 4.19% this time around, and I got absolutely nothing again.

I think I’ll probably just chuck the money into OCBC’s 8 month fixed deposit at 4.08% and be done with it frankly.

That being said, there is a 12 month T-Bill auction coming up on 26 January for those who are interested.

Many of you have asked whether the 12 month T-Bill is superior for CPF-OA (because you lose less CPF-OA interest).

I’m running the numbers on that and will share this weekend, together with my estimate on the yields for the 12 month T-Bills.

 

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