T-Bills yield soars to 4.4% – Why did interest rates go up so much?! (8 December 2022 Auction Results)


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.


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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.


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