The next 6-month T-Bills auction is on 1 August 2024 (Thursday).
Interest rates have generally been declining across the board the past few weeks.
And this week’s 12 month T-Bills came in on the lower end of my projected range – at 3.38%.
I myself had a decent chunk of T-Bills that just matured this week, so I’m looking for a place to park that cash.
So I wanted to look at the 1 August T-Bills auction and discuss 3 questions:
- What is the expected yield on the 1 August 6-month T-Bills Auction?
- What are the alternatives to buying T-Bills today?
- Will I still buy the 6-month T-Bills despite falling interest rates?
12-month T-Bills yields drop to 3.38%
In my previous article I estimated a range of 3.30% – 3.60% for the 12-month T-Bills.
Final cut-off yields came in at 3.38%, which was on the lower end of my projected range.
With some simple math, if we assume that the upcoming August 6-month T-Bills auction has a cut-off yield of more than 3.60%, it means that as long as the T-Bills are yielding more than 3.20% in 6 months time you’re better off just buying 6-month T-Bills.
What is the expected yield on the 1 August 6-month T-Bills Auction? – BS24113N 6-Month T-bill
6-month T-Bills trade at 3.61% on the open market
6-month T-Bills are trading at 3.61% on the open market.
There was a sharp drop in yields this week because of the derisking move across markets (more on this below).
This is not a good sign for T-Bills yields
But… T-Bill trading liquidity is very small (and therefore market yields are not that useful)
But trading liquidity on the T-Bills is so thin that actually the market pricing is not that useful.
Because of that 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 – there just isn’t sufficient trading liquidity for true price discovery.
But the trend is definitely troubling.
10 year Singapore Government Bond yields are also down
It’s not just T-Bills yields.
The 10 year Singapore Government Bond yield has also dropped sharply in July.
From as high as 3.3% at the start of July.
The 10 year yield has plunged to below 3% this week.
There’s a sharp trend of lower interest rates across the board here, and the recent stock market sell-off and blow up of the Yen carry trade is not helping matters.
Just look at that monster of a move in the Yen this week – is this what has been driving derisking across markets this week?
12-week MAS Bills are down to 3.80% (vs 3.87% at the previous auction)
The institutional only 12-week MAS Bills are down to 3.80%.
Moves in MAS Bills are a good indicator of the trend for T-Bills.
And for now, this isn’t looking good as MAS bills are suggesting a downtrend in yields.
Market is pricing in 3 interest rate cuts in 2024
With recent US data showing weakening inflation and economic growth.
And Fed officials coming out to talk up interest rate cuts.
The market has started to price in interest rate cuts in earnest.
We’re seeing 3 interest rate cuts priced in for 2024.
Again, not a great sign for T-Bills yields.
T-Bills Supply is flat at $6.8 billion (vs $6.8 billion at previous auction)
The amount of T-Bills will stay flat at $6.8 billion, identical vs the previous auction.
Demand for T-Bills rises to $15.7 billion (vs $15.6 billion the last auction)
Unfortunately the demand for T-Bills remains near record highs.
To be fair even after the decline, T-Bills yields are still higher than bank fixed deposit rates.
So it’s not hard to see why there is still a lot of investor demand.
6-month T-Bills yields dropped to 3.64% at the most recent auction (vs 3.70% the previous auction)
Because of all of the above.
T-Bills continued their recent downtrend.
In the most recent auction, T-Bills yields closed at 3.64%, down from 3.74% in the previous auction.
Estimated yield of 3.55% – 3.65% on the 6-month T-Bills auction? BS24115A 6-Month T-bill
I hate to say it.
But I suspect that T-Bills yields are going to continue their downtrend.
Market expectations are for a lot of interest rate cuts going forward, and Singapore yields have been weak the past few weeks.
Meanwhile there is a lot of investor demand for T-Bills, while supply is flat.
I would probably say an estimated yield of 3.55% – 3.65% on the next T-Bills auction.
Do note that this is just an estimate, and actual yields can vary – especially if demand is very high, or bidding is unusual.
And please, if you’re submitting a competitive bid, please don’t do anything silly like submit a low bid just to ensure you get an allotment.
If enough people think that way, we’re going to see terrible yields for everyone.
What are the alternatives to 6-month T-Bills to park cash?
Given the decline in T-Bills yields.
It probably makes sense to think about alternative places 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.
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|
Instrument |
Approximate Yield |
Maximum |
Risk Free? |
|
4.2% |
$20,000 |
No |
|
|
UOB One (or other high yield savings account)
|
4.00% |
$150,000 |
SDIC insured up to $100,000 |
|
6-month T-Bills |
3.64% |
No maximum |
Yes |
|
Money market fund like Mari Invest or Fullerton SGD Cash Fund |
3.5% – 3.8% |
No maximum |
No |
|
Fixed Deposits |
3.40% |
No Maximum |
SDIC insured up to $100,000 |
|
Singapore Savings Bonds |
3.19% (first year) |
$200,000 per person |
Yes |
|
MariBank Account |
2.70% |
$100,000 |
SDIC insured up to $100,000 |
Let me talk through some of them below.
Best interest rates are 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%.
Personally I have some cash in Chocolate Finance, but I do want to stress that this is not SDIC insured and not risk free.
So I leave it for investors to decide if you are comfortable with the risks (see my full review here).
Chocolate Finance currently 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
Best 6 month fixed deposit yield is 3.40% with State Bank of India
If you prefer something risk free.
The best 6-month fixed deposit rate is 3.40% with State Bank of India.
T-Bills yields are higher though, so you’re better off just sticking with T-Bills.
Money Market Funds pay about 3.5% – 3.8% yields – have stabilised of late
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 3.8% over the past 30 days for me.
The problem though is that the yields are not locked in and will fluctuate.
They are also technically not risk free.
Personally I hold a some funds in Mari Invest for liquidity, to balance out with T-Bills where you cannot get the money back before maturity easily.
Syfe Cash+ Guaranteed pays 3.60% for 6 months – but it is NOT SDIC insured
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 which are higher than retail fixed deposit rates.
If you do that, these are the latest interest rates on offer:
- 3 months – 3.7%
- 6 months – 3.6%
- 12 months – 3.45%
Just like Chocolate Finance though, Syfe Cash+ Guaranteed is NOT SDIC insured.
Will I still buy the 6 month T-Bills despite falling interest rates?
As shared at the start of the article, I have a chunk of money that just came back this week from maturing 6-month T-Bills.
I’ll actually applied for the 12-month T-Bills this week, but my competitive bid was higher than the 3.38% cut-off so I didn’t get any.
I already have cash in money market funds and Singapore Savings Bonds and Chocolate Finance, and I don’t see a need to increase allocation to those.
So I’ll probably continue to apply for the 6-month T-Bills.
That said, my suspicion (I hope I am wrong) is that the decline in yields may continue.
I’ll probably put in a competitive bid just to guard against that risk.
Deadline to apply for the T-Bills auction on 1 August (Thurs) – BS24115A 6-Month T-bill
Next 6 months T-Bills auction is on 1 August (Thurs).
Deadline to apply is therefore:
- 9pm on 31 July (Wed) for cash applications (and CPF-OA applications via DBS or OCBC internet banking)
- 9pm on 30 July (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 will be updating my stock and REIT watchlist this weekend on the names that I am keen to buy, do sign up for FH Premium if you are keen.
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