So… the latest T-Bills Auction Results are out.
And what a shocker.
Because while the last auction closed at 3.9%.
The latest T-Bills have a whopping 4.4% yield.
This is the second highest T-Bill yield of all time, since the previous high of 4.73% in 1988.
Yup you read that right.
This is the highest T-Bills yield in 34 years!
8 December 2022 T-Bills Auction Results – 4.4% yield
Diving a bit deeper into the numbers.
Out of an allocation size of $4.6 billion, $9.3 billion worth of applications was received.
This was 2.03 times covered.
Non-competitive applications see a full 100% allotment, at the cut-off yield of 4.4%.
How much T-Bills will I get?
In plain English:
Anybody who applied non-competitive gets full allotment of T-Bills at 4.4% yield.
Anybody who applied competitive bidding at below 4.4% gets full allotment of T-Bills at 4.4% yield.
Anybody who applied competitive bidding at 4.4% gets 82% allotment.
Anybody who applied competitive bidding above 4.4% gets nothing.
What happened? – Why did interest rates on T-Bills go up so much?
So let’s address the elephant in the room.
Why did interest rates go up so much?
The simple answer – is supply vs demand.
This time around, investor demand dropped drastically, which contributed to the sharp rise in auction yields.
Investor Demand for T-Bills has plunged
Taking a step back – T-Bills yields are determined by auction.
At each auction – 40% of the issue size is set aside for non-competitive bids, and the rest of the issue size is matched up to the competitive bids.
The point where it is cut-off, is the yield for the T-Bills.
I said in my weekend article that:
“The big wildcard would be how strongly retail investors turn up for this auction.
And whether they decide it’s not worth the time and effort, and just go for Fixed Deposit instead.”
And as it turns out – Investor demand for T-Bills has collapsed.
Whereas the previous T-Bills auction saw $11.8 billion in applications.
This time around – the amount applied plunged 22% to $9.34 billion.
I plotted this in chart form below.
The application amount for this latest T-Bill auction is the lowest it’s been since 20 September (when the yield was only 3.32%).
Why has Investor Demand dropped?
If I were to venture a guess, it would be that at the previous 3.9%, Fixed Deposit is a very attractive alternative to T-Bills.
When the latest CIMB Fixed Deposit offers 4.00% for 6-months, T-Bills need to be issued at a premium (to 4.0%) to be attractive.
This is because T-Bills cannot be easily sold before maturity for retail investors, and you need to bother with auction bidding mechanics, and you can only buy at auction.
Whereas Fixed Deposit can be deployed any time, you don’t need to bother with the bidding process, and you can actually get the money back before maturity by paying a small penalty fee.
Anecdotally, I know many investors who simply did not bother to apply this time around because they expected yields to be low.
BTW – we share commentary on Singapore Investments every week, so do join our Telegram Channel (or Telegram Group), Facebook and Instagram to stay up to date!
I also share great tips on Twitter.
Don’t forget to sign up for our free weekly newsletter too!
[mc4wp_form id=”173″]
I got lucky and applied competitive…
As shared in the weekend article:
“I will only buy T-Bills if they are issued at a premium to Fixed Deposit
T-Bills only make sense to me if they offer a higher interest rate than Fixed Deposit, for the reasons mentioned above.
But given that DBS waives the $2 application fee, I don’t mind just putting in a competitive bid to try my luck.
Who knows, maybe everyone would have flooded to Fixed Deposits, and we have a surprise jump in T-Bill yields?”
So I submitted a number of competitive bids in increasing amounts from 4.0% upwards (there is no limit to the number of competitive bids you can make for T-Bills).
And I received a very solid T-Bills allocation.
Frankly quite pleased with this result.
FAQs on T-Bills from the media
The media reached out to me with a couple of questions, that I thought were quite interesting.
Questions, and my response below.
What happened – Why did interest rates go up so much?
As shared above, individual T-Bills auctions are incredibly hard to predict accurately because of supply v demand dynamics.
This time around, investor demand dropped drastically, which contributed to the sharp rise in auction yields.
Is this against expectations – especially since Fed expected to hike only by 0.5% in Singapore?
No, I would actually say it was the previous T-Bills auctions that were against expectations.
Investor demand for the previous T-Bills auctions was very high, to the point where it skewed yields down (as compared to fair market pricing).
You can see the latest 12-week MAS Bill below, and it trades at a 4.49% yield.
So the yield of the 6-month T-Bill at 4.4% I would say is more in line with market pricing.
Do you expect the last T-Bills auction on Dec 21 to fall or rise in yields?
Unfortunately, T-Bills auction results are incredibly hard to predict with a high degree of accuracy, because of how the bidding process works.
The problem of course, is that because we have 4.4% yields this time around – the next auction you might see a flood of investor money coming for that 4.4% yield.
So while the market data can tell us the general interest rate trend.
The big wildcard here is how much retail investor demand you see for the next auction.
That’s not an easy call to make.
Something as silly as investors going on holiday and not bothering to put in an application could skew the yields.
Trust Bank Account (Partnership between Standard Chartered and NTUC)
Sign up for a Trust Bank Account and get:
- $35 NTUC voucher
- 1.5% base interest on your first $75,000 (up to 2.5%)
- Whole bunch of freebies
Fully SDIC insured as well.
It’s worth it in my view, a lot of freebies for very little effort.
Full review here, or use Promo Code N0D61KGY when you sign up to get the vouchers!
– Free USD150 ($212) cash voucher
I did a review on WeBull and I really like this brokerage – Free US Stock, Options and ETF trading, in a very easy to use platform.
I use it for my own trades in fact.
They’re running a promo now with a free USD 150 (S$212) cash voucher.
You just need to:
- and fund S$2000
- Make 1 US Stock or ETF trade (you get USD100)
- Make 1 Options trade (you get USD50)
Looking for a low cost broker to buy US, China or Singapore stocks?
Get a free stock and commission free trading .
Get a free stock and commission free trading with .
Get a free stock and commission free trading with .
Special account opening bonus for Saxo Brokers too (drop email to [email protected] for full steps).
Or for competitive FX and commissions.
Looking to buy Bitcoin, Ethereum, or Crypto?
Check out our guide to the best Crypto Exchange here.
Do like and follow our Facebook and Instagram, or join the Telegram Channel. Never miss another post from Financial Horse!
Looking for a comprehensive guide to investing that covers stocks, REITs, bonds, CPF and asset allocation? Check out the FH Complete Guide to Investing.
Or if you’re a more advanced investor, check out the REITs Investing Masterclass, which goes in-depth into REITs investing – everything from how much REITs to own, which economic conditions to buy REITs, how to pick REITs etc.
Want to learn everything there is to know about stocks? Check out our Stocks Masterclass – learn how to pick growth and dividend stocks, how to position size, when to buy stocks, how to use options to supercharge returns, and more!
All are THE best quality investment courses available to Singapore investors out there!
FYI – We just launched the FH Property Series. Everything you need to know to buy a property in Singapore, completely free of charge.