The next 6 months T-Bills auction is on 17 August 2023 (Thursday).
With the drop in yields for the previous round of T-Bills (down to 3.75%), there’s a lot of interest as to where the yields for this auction will go.
Let’s address 2 key questions:
- What is the estimated yield on the next 6-month T-Bills?
- Are T-Bills still a good buy vs Fixed Deposit or Singapore Savings Bonds or GXS?
What is the estimated yield on the next 6-month T-Bills?
6 month T-Bills trade at 3.75% on the open market
The 6-month T-Bills trade at 3.75% on the open market.
However as you can see, the T-Bills yields have been on a downtrend of late, closing at 3.75% for the most recent auction.
MAS Bills up slightly from the past auction
You can see from the chart below that yields on the MAS Bills dropped sharply in early August.
This foreshadowed the sharp drop in yields in the last T-Bills auction.
Which is another reminder of why you should submit your bid as close to the auction date as possible, and always check where yields are at the time you are bidding.
You never know when market conditions will change suddenly, like it did for the previous T-Bills.
Why exactly the yields on MAS Bills (and T-Bills) dropped is not so clear.
But what is clear is that this trend looks to be intact.
MAS Bills are up slightly from where at the start of the month, but it’s a very mild tick up only.
US short term interest rates are flat though
Interestingly, if you look at US 1 year interest rates they are generally flat for the past month.
Which is what makes the drop in Singapore interest rates so puzzling.
Perhaps it’s due to SGD liquidity, or influx of liquidity from Asian players?
Demand for T-Bills is the wildcard?
Demand for T-Bills is always the wildcard.
You can see how T-Bills demand has stabilised at about $12 billion the past 2 auctions.
Will that hold up the next auction?
Your guess is as good as mine.
Most of you who are holding T-Bills or fixed deposit from early 2023 will have the money coming back soon, which could spark a lot of demand for T-Bills even if the rates come in lower.
Amount offered is $5.6 billion, which is generally in line with the past few auctions.
Estimated yield on 17 Aug T-Bills Auction – 3.70 – 3.85%?
Putting this altogether, it seems like we may not have a meaningful uptick in yields.
For some reason Singapore interest rates have dipped since early Aug and seem to have stabilised around current (lower) levels.
If you’re bidding though, I suggest taking a quick look at the SGS yields and MAS Bills next week before you submit, just in case there is a sharp change in prices right before the auction (like what happened last auction).
Based on information available to me today, I’m going to go with an estimated yield of 3.70% – 3.85%.
As always, I do suggest putting in a competitive bid to avoid any freak results.
Are T-Bills still a good buy vs Fixed Deposit or Singapore Savings Bonds or GXS?
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GXS Bank slashes interest rate from 3.48% to 2.68%
Remember how I said GXS Bank (the digital bank by Grab and Singtel) was very competitive vs T-Bills, with 3.48% yields and instant liquidity?
Well, the party is over now.
Because interest rates have been slashed from 3.48% to 2.68%.
I mean 2.68% is still okay considering that you have instant liquidity via a savings account.
But it’s definitely no longer best in class.
The differential in interest rates (between T-Bills and GXS) is now close to a full percentage point, which is quite meaningful.
I’ll probably still use GXS Bank for spare liquidity, but I doubt I’ll be holding as much cash there after 17 August anymore.
Best Fixed Deposit – 3.55% with CIMB Bank
In terms of best fixed deposits, you’re looking at 3.55% for a 9 months fixed deposit with CIMB (3.60% if you’re preferred banking).
So in terms of absolute yields, T-Bills are still superior.
I know a lot of you say good things about Maybank, but I do want to flag that with Maybank you need to put $1,000 into a Maybank account for every $10,000 in fixed deposit.
So this works if you already have a savings account with Maybank, but do note that if you count the full blended yield the effective interest does drop quite a bit.
Maybank also dropped their promo fixed deposit rate from 3.90% to 3.75%.
Which means that the current blended rate is about 3.4%ish.
CIMB is probably the better choice for fixed deposits for now.
Singapore Savings Bonds yield 3.01%
I wrote about Singapore Savings Bonds last week.
Yes, interest rates are 3.01% are way lower than T-Bills at 3.75%.
But the benefit is that you get to lock in the interest rates for up to 10 years.
In the event that interest rates are cut in 2024, this could come in handy.
So Singapore Savings Bonds are quite a different instrument from T-Bills, and should be thought of accordingly.
Fullerton SGD Cash Fund
The other alternative is money market funds like Fullerton SGD Cash Fund.
I wrote an in depth analysis on Fullerton SGD Cash fund so do check that out if you are keen.
7 day annualised yield is 3.88% which is pretty attractive, but do note that the yields are not locked in, and are reset every 4 weeks or so.
So this does expose you to significant uncertainty over interest rates – whereas with T-Bills you are locking in the rates for 6 months.
Of course, the benefit with money market funds is that you can get the cash back any time with T+1 liquidity, so if really goes back to what you value most.
Do also note that money market funds are not SDIC insured or backed by the government.
So technically speaking, they are not risk free unlike T-Bills or Fixed Deposits (below SDIC limits).
What am I doing? Am I buying T-Bills?
I’m sure a lot of you are in the same boat.
T-Bills and Fixed Deposits from earlier in the year are starting to come due, and you need to find a place for the cash.
Even though T-Bills yields have come down, they’re still more attractive than other options like Fixed Deposits and GXS.
So I’ll likely still be applying for the T-Bills.
Timeline for the 17 August 2023 T-Bills
Auction for the T-Bills is on 17 August 2023.
Cash buyers will want to get their application in by 9pm on 16 August.
CPF-OA buyers will want to get it done by 15 August.
This article was written on 11 August 2023 and will not be updated going forward. For my latest up to date views on markets, my personal REIT and Stock Watchlist, and my personal portfolio positioning, do sign up as a Patreon.
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