Will I still buy 6-month T-Bills with lower interest rates? Estimated yield for the 15 August Auction?

The next 6-month T-Bills auction is on 15 August 2024 (Thursday).

And boy… interest rates have plunged the past few weeks.

The most recent 6-month T-Bills came in at 3.40%.

While fixed deposit rates, and long term interest rates, have all been falling across the board.

I have a decent chunk of cash from recently matured T-Bills, that I’ve been looking to park somewhere.

So I wanted to look at the 15 August T-Bills auction and discuss 3 questions:

1. What is the expected yield on the 15 August 6-month T-Bills Auction?
2. What are the alternatives to buying T-Bills today?
3. Will I still buy the 6-month T-Bills despite falling interest rates?

6-month T-Bills yields plunge to 3.40% at the most recent auction

As you would know by now.

In the most recent T-Bills auction, cut-off yields plunged to 3.40% on record high demand.

Visualised below – this is the lowest yields we’ve seen over the past 18 months.

Fixed Deposit interest rates drop sharply as well (via Syfe Cash+ Guaranteed)

Just a week ago these were the rates on institutional fixed deposits (via Syfe Cash+ Guaranteed):

• 3 months – 3.60%
• 6 months – 3.50%
• 12 months – 3.20%

As of this week, the latest interest rates are below.

That’s a whopping 0.3% drop in the 6 month tenure, in just 1 week.

What is the expected yield on the 15 August 6-month T-Bills Auction? – BS24116E 6-Month T-bill

6-month T-Bills yields continue to slide on the open market – trading at 3.35%

You might think that the last T-Bills auction was a fluke.

But the 6-month T-Bills are actually trading even lower on the open market – at 3.35%.

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 – but that said the initial signs do not look good.

12-week MAS Bills drop sharply to 3.63% (vs 3.80% at the previous auction)

Unfortunately the 12-week MAS Bills back up this trend – a sharp drop to 3.63% (vs 3.80% a week ago).

MAS Bills are an institutional only product – and therefore a good indicator of the trend for T-Bills.

This in a way confirms the downtrend in yields.

Market volatility is very elevated due to risk off from the Yen carry trade

I wrote about this earlier this week, so do check out the post for my fuller thoughts.

Ever since the Bank of Japan shocked markets with a surprise rate hike last Wed.

Market volatility has been very high.

Just look at the chart of the Nikkei below, even after the recovery it still has not closed the gap we saw on Monday.

Market volatility tends to lead to a flight to safety (in government bonds), and may further pressure yields.

Market is pricing in 4 interest rate cuts in 2024

With all that volatility, and latest US labour data suggesting a weakening US labour market.

Market is pricing in very aggressive rate cuts from the Feds:

1. 0.5% cut in Sep
2. Full 1.0% in cuts by end 2024
3. 2.0% in cuts by mid 2025

Again, not bullish for yields.

10 year Singapore Government Bond yields drop sharply – as low as 2.6%

It’s not just T-Bills yields.

The 10 year Singapore Government Bond yield has also dropped sharply.

From as high as 3.3% at the start of July.

To as low as 2.6% a few days ago.

Yes it has rebounded to almost 2.9% of late, but the volatility makes it very difficult to call next week’s auction yields.

T-Bills Supply is flat at $6.9 billion (vs $6.8 billion at previous auction)

Unfortunately we’re not getting any respite in the form of higher supply of T-Bills.

The amount of T-Bills will stay roughly flat at $6.9 billion, only up slightly from the $6.8 billion in the previous auction.

T-Bills Application Amount (Demand) soars to $18.0 billion (vs $15.7 billion the last auction)

Demand for T-Bills soared in the previous auction to $18.0 billion, well above all-time highs.

It is possible though, that with the sharp drop in yields, we may see demand drop this auction.

Especially given that that at 3.4%, T-Bills yields are no longer that attractive relative to Fixed Deposit or Money Market Fund options.

Estimated yield of 3.35% – 3.50% on the 6-month T-Bills auction? BS24116E 6-Month T-bill

The next T-Bills auction on 15 August might be a tough one to call.

Firstly because record market volatility means that yields are all over the place this week.

Secondly because the sharp drop in yields may (or may not) lead to lower investor demand.

And for those who continue to submit competitive bids, you really don’t know how they are going to bid next week.

That said, the market is pricing in a lot of interest rate cuts the next 6 months due to weakening US inflation and labour market data.

So from a fundamental perspective, the “fair value” yield has indeed gone down, and I would not be expecting a significant rebound in yields to the 3.7% range.

I would probably say an estimated yield of 3.35% – 3.50% on the next T-Bills auction.

Of course, this is just an estimate, and actual yields can vary – especially if demand moves materially, or bidding is unusual.

Given the volatility, I suggest that investors submit a competitive bid to protect against a sharp drop in yields.

And place your bid as close to the auction date as possible, just in case something funky happens in markets.

What are the alternatives to 6-month T-Bills to park cash?

I’ve done a simple summary of the various options available below, with approximate yield, maximum amount, and whether it is risk free or not.

You can now follow Financial Horse on Google Chrome to avoid missing any posts!

Just:

1. Click the 3 dots on the top right of Google Chrome
2. Click Follow!
3. And Financial Horse posts will now appear on your home page, under Following:

You can also follow Financial Horse on:

• Telegram Channel (or Telegram Group)
• Facebook
• Instagram 
• Twitter

I also send out a newsletter at 10am every Sunday – rounding up the posts from Financial Horse for the week. Sign up below!

Best 6 month fixed deposit yield is 3.40% with State Bank of India

These are the best fixed deposit rates as of August 2024.

At 3.40% for 6 months and in line with T-Bills, pretty decent alternative if you don’t want to bother waiting for the auction and taking on all that uncertainty over bidding.

Money Market Funds pay about 3.5% – 3.7% yields – but are likely to fall

The benefit with Money Market Funds like Mari Invest or Fullerton SGD Cash Fund is that you can get the money back any time with T+1 liquidity.

The rates are also competitive with T-Bills – Mari Invest is paying about 3.7% over the past 30 days for me.

The problem is that because money market funds typically invest in instruments with 4 – 12 week duration.

Once the Fed cuts happen, it is likely their yields will start to drop quite sharply going forward.

Personally I hold a some funds in Mari Invest for liquidity and yield.

Syfe Cash+ Guaranteed pays 3.20% for 6 months – sharp drop from just 1 week ago

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.

However note that with the sharp drop in interest rates this week, they’re actually lower than just placing with the bank directly.

Which given that Syfe Cash+ Guaranteed is NOT SDIC insured, I would say you’re better off just parking with the bank directly.

Will I still buy 6-month T-Bills with lower interest rates?

I have some cash from T-Bills that just matured.

I’ve been parking them in a mix of MariBank and MariInvest for now.

I’ll probably submit a competitive bid for the T-Bills though.

There is a chance that we could see a small rebound in yields.

With a competitive bid, I won’t be forced to buy if yields continue their downtrend.

And since I usually apply the day before the auction, the opportunity cost of the funds is very small (I get the money back the next day if unsuccessful).

So the downside is limited, and I might as well just throw in a bid.

If yields are attractive I’ll get an allocation, if yields continue to slide I won’t get any.

But that’s just me, and I leave investors to decide what makes sense for them.

Deadline to apply for the T-Bills auction on 15 August (Thurs) – BS24116E 6-Month T-bill

Next 6 months T-Bills auction is on 15 August (Thurs).

Deadline to apply is therefore:

• 9pm on 14 Aug (Wed) for cash applications (and CPF-OA applications via DBS or OCBC internet banking)
• 9pm on 13 Aug (Tues) for UOB CPF-OA applications

There have been huge moves in stock prices the past 2 weeks, with lots of opportunity in markets.

I just updated my stock and REIT watchlist on the names that I am keen to buy, do sign up for FH Premium if you are keen.

Never miss another post from Financial Horse!

Follow Financial Horse on:

• Telegram Channel (or Telegram Group)
• Facebook
• Instagram 
• Twitter

I also send out a newsletter at 10am every Sunday – rounding up the posts from Financial Horse for the week. Sign up below!