So the next T-Bills Auction is on 11 May.
The last 6 month T-Bills closed at 3.83% yield, while most of the banks have revised their 6 months fixed deposit down to the 3.5-ish range.
Which means that investors who want a place to park their cash for the short term and enjoy a high yield – T-Bills are starting to look very attractive.
In this article, I wanted to discuss:
- Estimated Yield of the next 6 months T-Bills
- How do T-Bills compare vs Fixed Deposit or Singapore Savings Bonds?
- Would I buy T-Bills or Fixed Deposit or Singapore Savings Bonds right now?
Next T-Bills Auction on 11 May
First off – Next T-Bills auction is on 11 May.
Cash applications should go in by 9pm on 10 May, while CPF-OA applications should go in by 9 May.
What is the Estimated Yield of the next 6 months T-Bills?
SGS Yields – 3.73%
The latest 6 month T-Bills are trading at 3.73% on the open market.
12 week MAS Bills
While the latest 12 week MAS Bills trade at 3.92%.
Jerome Powell vs the Market – who is going to be right?
The Federal Reserve hiked 0.25% this week.
They also hinted strongly at a pause, but left the door open to another rate hike.
Despite this though, the market just refuses to believe him at this point.
Market is pricing in no more rate hikes this year, with rate cuts to begin as soon as July’s FOMC:
As shared previously, I think market pricing on rate cuts is way too aggressive.
Unfortunately, none of this matters for T-Bills, because it will price in the current interest rate curve.
Which is pricing in rate cuts very soon.
In plain English – this is not good for T-Bills yields.
Latest 6 month T-Bills auction went up to 3.83% yield
Interestingly the most recent 6 month T-Bills auction went up to 3.83% yield:
Demand for the previous auction was low due to CPF-OA buyers
However, do note that the previous round of T-Bills was particularly bad for CPF-OA buyers.
The auction date was 26 April, which means that CPF-OA funds would have been deducted one day after auction on 27 April.
So CPF-OA buyers would have lost CPF-OA interest for the whole month of April, while T-Bills interest only kicks in in May.
Because of that you do see a sharp drop in application amounts for the previous auction.
That may lead to a bit of “pent-up” demand for this round of T-Bills, so you may see demand bounce back quite strongly.
Especially when you realise that most of the banks have revised their May 2023 Fixed Deposit rates down to the 3.5-ish range, which means that T-Bills becomes more attractive relative to Fixed Deposit.
Long story short – demand may rebound strongly for this round of T-Bills, which does cast a bit of uncertainty over the final T-Bills cut-off yields.
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Estimated Yield of the next 6-month T-Bills – 3.65% – 3.75%?
Put that all together, and my estimated yield for the next 6-month T-Bills auction will be 3.65% – 3.75%.
As always, I encourage readers to submit a competitive bid to protect yourself against any freak results.
For example if you’re buying with CPF-OA and don’t mind buying as long as T-Bills close above 3.60%, then you can submit a competitive bid for 3.60%.
Or if you’re a cash buyer and only want to buy above 3.75%, then you can bid accordingly.
Do consider opportunity cost when bidding though, because if you don’t get any allotment you are effectively losing the interest on the cash (until you redeploy it).
How do T-Bills compare vs Fixed Deposit or Singapore Savings Bonds?
An interesting development is that Fixed Deposit and Singapore Savings Bonds interest rates have come down quite a bit since April 2023.
Because of that, T-Bills is actually looking much more attractive than either Fixed Deposit or Singapore Savings Bonds.
Better Buy – T-Bills vs Fixed Deposit?
I did some checking around and the best 6-month Fixed Deposit I could find is 3.60% with Bank of China:
Do note that this is a foreign bank though, so not everyone may have an account with them.
And if you want a local bank, your best option is UOB – 3.45% for a 6-month Fixed Deposit.
Interest Rate Curve is very funky at the moment
If you look deeper into the Fixed Deposit pricing, you’ll find something very interesting.
Look at Bank of China’s Fixed Deposits, the most attractive rate is 3.60% for 6 months.
Which drops to 3.50% for 9 – 12 months.
And drops to 3.3% at 18 months.
Look at the SGS Yield Curve and it tells a similar story.
3.76% for 6 months.
Dropping to 3.57% for 12 months.
And dropping further to 3.14% for 24 months.
Everybody (both banks and the market) is pricing in rate cuts in 6 – 12 months
So it seems like both the banks and the markets are expecting interest rate cuts in 6 – 12 months.
Which is why you have a peak in interest rates at the 6 months mark.
As shared previously, I do have my doubts whether the market is right on this.
Most of the economic data is still coming in hot, and showing no signs of an immediate recession.
Rate cuts might be priced too aggressively in my view.
And if you agree with me, then the 6 month T-Bills is probably the right duration to play it.
It gives you the highest interest rates across the yield curve at the moment.
And if you are right and interest rates stay high in 6 months, you can always roll over the T-Bills then.
State Bank of India is offering 3.75% for 12 months Fixed Deposit
That being said, State Bank of India is offering 3.75% for 12 months Fixed Deposit.
Completely bucking the analysis above.
This only applies to the 12 months Fixed Deposit though, you don’t get it with a 6 months Fixed Deposit.
Looking at what the other banks have done to slash their 12 month Fixed Deposits (relative to 6 months), I’m not sure how long this promotion will last.
So do grab it while it lasts if you are keen (minimum deposit of $50,000).
Better Buy – T-Bills vs Singapore Savings Bonds
Here’s the interest rate curve on the latest Singapore Savings Bonds.
2.81% flat for the full 10 years.
This might be the first time I’ve ever seen it like this – which goes to show you how inverted the yield curve is at the moment.
In any case, unless you want to lock up the money long term, I don’t think Singapore Savings Bonds are all that attractive right now.
T-Bills just looks much more attractive to me.
My Personal Views – Would I buy T-Bills or Fixed Deposit or Singapore Savings Bonds right now?
As you would have realised from our discussions the past few months, the most attractive cash solution varies greatly from month to month depending on T-Bills interest rates and Fixed deposit interest rates.
Where we are today, I think T-Bills are probably the most attractive.
Singapore Savings Bonds are mainly used to lock in long term interest rates, and investors so inclined should already have done so the past 2 months when rates were more attractive.
Fixed Deposit is not too bad if you don’t mind locking up 12 months at 3.75% with State Bank of India.
But not everyone may have an account with State Bank of India, and if you go with the local banks you’re looking at 3.45% with UOB.
If it were me, I would probably be using the 6 month T-Bills for my cash right now.
Money Market Funds as an alternative to T-Bills or Fixed Deposit?
Do note that another option is money market funds.
You can get access to money market funds such as Fullerton SGD Cash Fund via a broker like moomoo or endowus.
These are fully liquid and can be withdrawn any time.
The yield varies on how much risk you are prepared to take on, but a lower risk option like Fullerton SGD Cash Fund will yield about 3.5 – 3.7%ish right now.
It’s worth checking out if you don’t want to lock money up in T-Bills or Fixed Deposit, yet want a decent yield.
The drawback of course is that technically money market funds are not capital guaranteed.
So if something goes wrong, you can suffer capital losses.
And in times of market stress, liquidity on the money market funds can be quite tight and you may not be able to sell immediately without capital losses.
Money Market Funds are not created equal too, some are more risky than others, so you also need to spend the time to understand that the funds invest in.
Too much complexity for retail investors in my view.
So personally I’m using T-Bills / Fixed Deposit / Singapore Savings Bonds for the bulk of my cash, and I use money market funds mostly for idle cash I have sitting in brokerage accounts.
If you guys are keen to read more on this do let me know, I can do a more in depth piece on the money market funds.
This article is written on 5 May 2023 and will not be updated going forward.
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Hi FH, your article yesterday estimated 6 months T bill yield 3.7-3.8%. Your article today estimated it at 3.65-3.75%. Just curious, while the difference is small, but what happened so that your estimate in today’s article is slightly lower?
I thought about it a bit more and I think demand may bounce back quite a bit this auction from cpf demand and cash (since FD rates are not so attractive anymore).
So I thought my original range might have been too optimistic and adjusted it down slightly. I should probably update yesterday’s article as well.
Just to add that all this is just an educated guess. I encourage readers to put in a competitive bid to get around this issue.
Yes, please do a write up on money market funds. Thank you!
Okay – will look to do something on money market funds.