So the next 6 month T-Bills auction is on 6 July 2023.
In case you missed it, the most recent T-Bills auction closed at 3.89%, which is comfortably above Fixed Deposits (or Money Market Funds / Singapore Savings Bonds).
At the same time – July will see a 1-year T-Bills auction.
So investors will have the option of choosing between 6-month T-Bills and 1-year T-Bills.
3 big questions I wanted to discuss today:
- Will T-Bills yields cross 4.00%?
- Should you buy the 1-year T-Bills instead?
- Will T-Bill interest rates go even higher because of Fed hikes?
Auction: BS23113V 6-Month T-bill auction on 6 July 2023
The next 6-month T-Bills auction (BS23113V) is on 6 July 2023.
Cash applications should go in 1 day before.
And CPF-OA applications should go in 2 days before.
Will 6-month T-Bill yields cross 4%?
A lot of you have been asking whether T-Bill yields will cross 4.00%, so let’s look at the market pricing.
6-month T-Bills trade at 3.87% on the open market
The latest 6-month T-Bills trade at 3.87% on the open market.
12-week MAS Bills trade at 4.11%
While the institutional only 12-week MAS Bills trade at 4.11%.
Most recent T-Bills auction went up to 3.89%
You will recall that the most recent T-Bills auction closed at 3.89%, which is the highest it has been since March 2023:
Demand for T-Bills seems to be dropping
This rise in T-Bills yields seems to have been driven by declining demand for T-Bills.
Why exactly demand for T-Bills is going down is not so clear.
My theory is that investors are deploying their cash elsewhere – whether it’s in a longer term fixed deposit to lock in yields, or into capital markets (stocks / REITs) given that market volatility has calmed down.
If this continues going forward, we may see T-Bills yields continue to creep up.
Will 6-month T-Bills yields cross 4.00%?
So will T-Bills yields cross 4.00% for this 6 July 2023 auction?
It’s definitely possible – the big wildcard is going to be the application amounts.
If application amounts continue to slide, we could well see T-Bills yields pass 4.00%.
That said, I don’t think this is going to be my base case.
Estimated range of 3.85% – 3.95% on the next T-Bills auction
I think base case we’ll probably see the 6 month T-Bills yields come in around the 3.85% – 3.95% range.
Could be wrong though, so let’s see.
As always, I encourage investors to place a competitive bid to avoid any freak results.
Note that July has a 1-year T-Bill auction on 27 July 2023
Some of you in the Telegram Group have asked whether the 1-year T-Bills are a better buy instead.
Do note that there are only 4 1-year T-Bills available for auction each year (once a quarter).
And the next 1-year T-Bills auction is coming up on 27 July 2023.
So investors who want to lock in yields for a year should definitely keep a lookout.
Estimated Yields on the July 1-year T-Bills?
That said – the 1-year T-Bills tends to be quite popular.
They are especially popular with CPF-OA investors, because it allows you to lock in the yields for 1-year, and it minimises lost CPF-OA interest.
So the past few 1-year T-Bills have all closed below market yields (the most recent auction closed at 3.58%).
The 1-year T-Bills trade at 3.62% on the open market.
If we assume this holds true – you may see about 3.5%-ish yields on the July 1-year T-Bills.
That’s frankly not all that attractive, considering that you can just go to RHB bank and get a 1-year fixed deposit at 3.5% – 3.55% without any hassle.
Should you buy the 1-year T-Bills instead?
Some simple numbers.
If you assume the 6-month T-Bills will close at 3.9% yield.
And 3.6% for the 1-year T-Bills.
Then as long as you can roll over the 6-month T-Bills at 3.4% or more in December 2023, you’re already ahead on the 6-month T-Bills (slightly higher yield required because of the lost of interest between T-Bills).
Is this a fair bet?
Personal View
Personal view – I frankly have no clue where interest rates will be in 6 months.
If you look at latest market pricing – market today is pricing in 1 – 2 rate cuts in 1H 2024.
But will market expectations change by December 2023?
Hell yeah.
We’re at the point in the cycle where what happens next is going to depend on how the Feds prioritise fighting inflation over preventing a recession.
What exactly Powell is going to do in the next 6 – 1-year.
I don’t have a strong view on this.
So what I will say is this.
If you really wanted to lock in interest rates for 1-year you might as well just go with a fixed deposit at 3.5 – 3.55% with RHB Bank.
It’s simple and fuss free, and you have the option of breaking any time.
And you can get it done tomorrow and not have to wait for the T-Bill auction.
Different for CPF buyers though
Big caveat that the analysis might be different for CPF-OA buyers though.
Because for CPF-OA buyers there is no fixed deposit alternative – you have to choose between 6-month and 1-year T-Bills.
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!
But do note the auction date is 27 July, so you will lose 14 months of CPF-OA interest
But do note auction date is 27 July.
This means that if you buy using CPF-OA funds, the moneys will be deducted from your CPF-OA on 28 July and you lose July interest.
But T-Bills are only issued in Aug, and mature on 30 July 2024.
You need a couple of days to withdraw from CPF-IA back into CPF-OA on maturity.
Meaning that effectively you lose July 2023 – August 2024 CPF interest, which is 14 months CPF-OA interest.
Does it still make sense to buy the 1-year T-Bills with CPF-OA then?
I’ve crunched the numbers below for you.
Assuming you buy the 1-year T-Bills at 3.60%.
With $100,000 CPF-OA funds.
You’ll still make $683 extra buying the 1-year T-Bills, as compared to leaving them in CPF-OA.
This is of course assuming that there are no changes to the CPF-OA interest rates.
What about 6 month T-Bills vs 1 year T-Bills?
What about 6 month T-Bills instead?
Assuming that you buy the 6 month T-Bills at 3.85%.
Roll them over at 3.60%.
Then the 6 month T-Bills come out slightly ahead – $145 extra.
So… buy 1-year or 6 month T-Bills with CPF-OA?
As you can imagine, there’s a lot of assumptions that go into the numbers above.
Where will T-Bills interest rates be in 6 months?
Can you roll over in the same month or the following month?
Whatever the case, it’s fairly clear that the numbers for 6 month and 1-year T-Bills are very close.
Close enough that it will come down to factors beyond your control.
So for CPF-OA investors who want the peace of mind and don’t want to have to bother applying for T-Bills again for the next 1-year.
I think the 1-year T-Bills are worth considering.
Will T-Bill interest rates go even higher because of Fed hikes?
As you know, Jerome Powell’s Fed sees up to 2 more interest rate hikes in 2023.
Some of you have asked whether T-Bills interest rates are going even higher because of Fed interest rate hikes.
The answer to this question is not a simple one because of 2 reasons:
- Some of this is already “priced in”
- T-Bills yields are determined by supply vs demand
Some of this is already “priced in”
You can see what is priced into the market today.
Market sees 80% chance of 1 more rate hike.
And 27% chance of 2 more rate hikes.
So in some way Powell’s rate hikes are already “priced in” into today’s interest rates.
For interest rates to go even higher, Powell needs to do something to further increase market expectations on hikes.
T-Bills yields are determined by supply vs demand
And perhaps more importantly, T-Bills yields are determined by supply vs demand.
No matter what is priced into the interest rate curve.
If demand for a T-Bills auction is low, you could see yields jump.
So predicting T-Bills yields at auction isn’t simply about what is priced into the market, it’s also about supply demand dynamics.
Personally I do think T-Bills yields might go up in the weeks ahead.
But let’s see, this is not an easy call.
We are very late in the interest rate hiking cycle, things can turn on a dime here.
Whatever your views, I still suggest putting in a competitive bid to minimise risk.
Better Buy: T-Bills vs Fixed Deposits
The best 6-month Fixed Deposits pay 3.55%.
My view – T-Bills are just a better buy if they close at 3.89%-ish.
Yes, effective yield is lower because you do lose a few days interest (between auction date and issue date).
But even after accounting for that – effective yield is about 3.7ish%, still above fixed deposits.
That said if you do want to lock in interest rates for 1-year, then I think fixed deposits are probably the better buy.
You can get them locked in tomorrow (without having to wait till end July).
And you can technically break the fixed deposit any time and get your money back (by forfeiting the interest).
Better Buy: T-Bills vs Singapore Savings Bonds
Interest rates for the August Singapore Savings Bonds are projected to be around 3% yield for the first year.
It then stays flat for the next 10 years, because of the inverted yield curve.
Frankly that’s actually not too bad – it lets you lock in interest rates for a very long time.
I can actually see a role for these Singapore Savings Bonds in one’s portfolio.
But the role vs T-Bills is very different.
If you want to maximise short term yields, T-Bills still come out ahead.
Better Buy: T-Bills vs Money Market Funds
I wrote a full article on Fullerton SGD Cash Fund (a money market fund), so do check that out if you are keen.
Money Market Funds like Fullerton SGD Cash Fund give you T+1 liquidity, and gives you interest rates that are comparable to fixed deposits.
For investors who value the liquidity, money market funds are definitely worth checking out.
But do note that Money Market Funds are technically not SDIC insured – so unlike T-Bills they are not risk free.
This article was written on 29 June 2023 and will not be updated going forward. For my latest up to date views on markets, my personal REIT and Stock Watchlist, and my personal portfolio positioning, do sign up as a Patreon.
WeBull Account – Get up to USD 800 worth of shares (expires 31 July)
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 up to USD 500 free fractional shares.
You just need to:
- Sign up here and fund $300 SGD
- Execute 1 buy trade within 30 days of funding
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!
Portfolio tracker to track your Singapore dividend stocks?
I use StocksCafe to track my portfolio and dividend stocks. Check out my full review on StocksCafe.
Low cost broker to buy US, China or Singapore stocks?
Get a free stock and commission free trading Webull.
Get a free stock and commission free trading with MooMoo.
Get a free stock and commission free trading with Tiger Brokers.
Special account opening bonus for Saxo Brokers too (drop email to [email protected] for full steps).
Or Interactive Brokers for competitive FX and commissions.
Best investment books to improve as an investor in 2023?
Check out my personal recommendations for a reading list here.