The next 6-month T-Bills auction is on 12 Sep 2024.
With the drop in T-Bills yields to 3.13%, I’m not so sure if I will still be buying though.
Given that the “breakeven” for CPF-OA is 2.9% once you factor in lost interest, at 3.13% the difference in interest earned is pretty small.
And for cash – T-Bills at 3.13% no longer offer a significantly higher interest rate than other cash options.
3 points I wanted to discuss.
- What is the expected yield on the next 6-month T-Bills Auction?
- Any chance interest rates will go up?
- Will I still buy the 6-month T-Bills despite falling interest rates?
What is the expected yield on the next 6-month T-Bills Auction?
6-month T-Bills yields continue their drop to 3.13% at the most recent auction
In the most recent T-Bills auction, cut-off yields continued their drop to 3.13%.
Charted below, this is the lowest yields we’ve seen over the past 18 months.
T-Bills application amount stabilises at $16.0 billion
Despite the sharp drop in interest rates, demand for T-Bills remains near record highs though.
$16.0 billion in T-Bills demand, flat vs the previous auction.
6-month T-Bills yields stabilise on the open market – trading at 3.12%
If you were hoping for a rebound in T-Bills interest rates.
It’s worth nothing that the 6-month T-Bills are trading at 3.12% on the open market.
But… T-Bill trading liquidity is very small (and therefore market yields are not that useful)
That being said – trading liquidity on the T-Bills is so thin that actually the market pricing is not that useful.
You’ll find that the market pricing actually takes its cue from the latest T-Bills auction, instead of the other way around.
So I would caution against placing too much reliance on market pricing on T-Bills.
12-week MAS Bills drop to 3.41%
The 12-week MAS Bills back up this trend though – falling sharply to 3.41% (was 3.61% at the last auction).
The market is pricing in a lot of interest rate cuts from the Feds, and this is reflected in almost every yield product.
Market is pricing in a lot of interest rate cuts the next 6 months (almost 1.75% in cuts)
You can see latest market pricing.
Almost 1.75% in interest rate cuts over the next 12 months.
And looking at weakening US employment data – you know what I’m actually inclined to agree.
I just think the Feds are slightly behind the curve here.
Between inflation and slowing economic growth, the scales have shifted towards the latter.
Feds need to cut quite a bit to get ahead of the curve.
T-Bills Supply is up slightly to $6.9 billion (vs $6.8 billion at previous auction)
Unfortunately we’re not getting much reprieve in the form of higher supply.
T-Bills auction amount is increasing slightly to $6.9 billion, but that’s only a whisker higher than the $6.8 billion at the previous auction.
Any chance interest rates will go up?
To be really honest, looking at all the market pricing data, I don’t think we’ll see a big recovery in interest rates.
As shared above, I think the Feds are behind the curve here, and they need to start cutting.
The market may be slightly wrong on the exact amount of cuts to come, but it doesn’t change the general direction – that a lot of cuts are coming.
For T-Bills it ultimately comes down to auction level dynamics, so we may see a rebound if more investors switch to alternative products, or submit higher competitive bids.
But frankly I wouldn’t hold my breath.
Even if we see a mild recovery in yields short term, it looks like the mid term trend is clear.
You can see how Singapore 10 year yields fell as low as 2.6% this week, breaking key support levels.
Estimated yield of 3.00% – 3.20% on the 6-month T-Bills auction?
Recent volatility over interest rates makes this auction a really tough one to call.
Much will also depend on whether investors find T-Bills less attractive at 3.13% and switch to alternative products.
I would probably go with an estimated yield of 3.00% – 3.20% on the next T-Bills auction.
I can see reasons why it may surprise to the downside (given market pricing over rate cuts).
Yet also reasons why it may surprise to the upside (if more investors stop applying for T-Bills).
As always – I encourage investors to submit a competitive bid, so if there is a surprise on the downside you are not forced to buy.
Will I still buy 6-month T-Bills with lower interest rates?
For CPF-OA – Breakeven is 2.92%
Note that if you’re buying T-Bills with CPF-OA, the “breakeven” rate is 2.92% because of lost interest.
Here’s the explanation from DBS below:
It is not as straightforward as you will need to work out the “breakeven” yields of T-bills for using CPF savings to ensure that you will not be in a worse off position.
This is partly because the interest computation of CPF balances is affected by the transactions in your CPF account. Contributions received this month start earning interest next month and withdrawals/deductions in this month will not earn interest from this month onwards.
Depending on when the deduction is done from your CPF account, you might lose up to 2 months of CPF interest. Taking that into account, these are the cut-off yields for T-bills that will result in a higher return than that of CPF-OA and SA yields.
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Still worth buying T-Bills with CPF-OA?
At 3.13%, the profit you are making isn’t really that big.
Unless you have a large amount of cash in your CPF-OA, it may not really be worth the time and effort to continue applying anymore.
Once my current batch of CPF-OA T-Bills expire, I don’t really see myself rolling them over into T-Bills anymore unless yields pick up.
Alternative to T-Bills for Cash?
For cash, these are the other options available:
| Yield (indicative) | Liquidity | Level of Risk? | |
| Bond Funds | 4%+ | Average | Moderate |
| Chocolate Finance | Good (4.2% on first $20,000) | Good | Low – Moderate |
| High Yield Savings Account (Eg. UOB One) | Good (4%) | Good | Risk free if below SDIC limit ($100,000) |
| Money Market Funds (Eg. MariInvest, Fullerton SGD Cash Fund) | Good (3.5 – 3.6%) | Good | Low – Moderate |
| T-Bills (6-months) | Average (3.13%) | Low (cannot exit before maturity) | Risk Free |
| Fixed Deposit | Average (3.1 – 3.35%) | Average | Risk Free if below SDIC limit ($100,000) |
| Singapore Savings Bonds | Low (2.59%) | Good | Risk Free |
Some readers have commented that with declining interest rates, it’s better to buy REITs or stocks instead.
Just to be clear, the purpose of this article isn’t to discuss that.
I myself am buying REITs / stocks, and you can see what I am buying on FH Premium.
The purpose of this article is mainly to discuss where I am parking my cash that is not invested in the markets.
Where am I parking my cash?
In the past the big chunk of them was in T-Bills, but with the sharp drop in yields it has definitely opened up alternatives.
For now at least, I’ll probably be using a mix of these options instead of T-Bills, unless we see a rebound in T-Bills yields (I don’t see 3.13% as particularly attractive).
For the recent maturing T-Bills, I have generally parked them:
- MariInvest (Money Market Funds)
- Last month’s Singapore Savings Bonds (3.06% first year yields)
Actually with the sharp drop in T-Bills yields I find some of the Fintech options pretty attractive, that I discuss below.
4.20% on first $20,000 if you deposit to Chocolate Finance
I wrote a detailed review on Chocolate Finance, so do check if out if you are keen.
Long story short is that Chocolate finance pays 4.2% on the first $20,000, withdrawable instantly.
The funds are invested in a selection of bond and money market funds, and Chocolate Finance will top up any returns if they are lower than 4.2%.
With the sharp drop in interest rates across the board, suddenly Chocolate Finance’s 4.2% looks a lot more attractive.
That said I don’t expect this 4.2% to last forever, Chocolate Finance will likely reduce it at some point.
Until then at least, you can enjoy the higher yields.
Personally I have some cash in Chocolate Finance, but I do want to stress that this is not SDIC insured and not risk free.
I leave it for investors to decide if you are comfortable with the risks (see my full review here).
Chocolate Finance is invite only, but you can use the FH invite link below if you are keen to try it out:
https://share.chocolate.app/nxW9/ep4q7wxp
GXS Bank – Pays 3.48% yield for 3 months
Alternatively GXS Bank is running a promotion now.
If you deposit $30,000 for 3 months, you’ll get an effective yield of 3.48%.
GXS Bank being a digital bank means this is SDIC insured, so it’s a pretty good deal and in line with the best institutional fixed deposit rates available.
I myself topped up the full $30,000 to enjoy this promo rate.
Syfe Cash+ Guaranteed pays 3.40% yield for 3 months tenure
You can also consider Syfe Cash+ Guaranteed (who then deposits the cash into an institutional fixed deposit deposit).
This allows you access to institutional fixed deposit rates:
- 3.40% for 3 months
- 3.10% for 6 months
Pretty much in line with T-Bills yields.
Do note that Syfe Cash+ Guaranteed is NOT SDIC insured though.
Singapore Savings Bonds are not that attractive
I bought quite a big of last month’s Singapore Savings Bonds as I thought the 3.06% first year yield was attractive given the sharply dropping interest rates.
With T-Bills yields falling to 3.13%, that did turn out to be a good move.
In any case this month’s Singapore Savings Bonds have much lower yields at 2.59%, and I don’t find them attractive at this level.
Deadline to apply for the T-Bills auction on 12 Sep (Thurs)
In any case – next 6 months T-Bills auction is on 12 Sep (Thurs).
Deadline to apply is therefore:
- 9pm on 11 Sep (Wed) for cash applications (and CPF-OA applications via DBS or OCBC internet banking)
- 9pm on 10 Sep (Tues) for UOB CPF-OA applications
This post is written on 6 Sep 2024 and will not be updated going forwards. My latest views on markets, my Stock watchlist and full Personal Portfolio, are shared on FH Premium.
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It would be nice to be able to invest CPF funds to SGD cash management funds like this one https://secure.fundsupermart.com/fsmone/funds/factsheet/FUL015/Fullerton-SGD-Cash-Fund-A-SGD, however it is not eligible…
Would you know the reason why? It seems to me they are safe enough to be eligible
I think you can go via Endowus Fund Smart instead, to purchase the funds.