Will T-Bills yields stay above 3.0%? Are T-Bills still a good buy today? 

0

Quite a few of you have asked me to continue the T-Bills series of articles, especially with T-Bills yields stabilising around the 3.0% mark.

So that’s exactly what we’ll do.

3 questions I wanted to discuss:

  1. Estimated yield on the next 6-month T-Bills auction?
  2. What are the alternatives to T-Bills in this market? Fixed Deposit, Money Market Funds, Bonds?
  3. Will I start buying T-Bills again?

Estimated yield on the next 6-month T-Bills auction?

The next 6-month T-Bills auction is on 19 Dec (Thurs).

Deadline to apply is therefore:

  • 9pm on 18 Dec (Wed) for cash applications (and CPF-OA applications via DBS or OCBC internet banking)
  • 9pm on 17 Dec (Tues) for UOB CPF-OA applications
A screenshot of a website

Description automatically generated

Launch of Dividend Investing MasterClass – Massive Launch Discount!

Before I dive in, just a quick update that I’ve been working on this the past 3 years, and it’s finally done – the Dividend Investing MasterClass.

The Dividend Investing MasterClass is a complete all in one course.

That teaches you the fundamentals on constructing a dividend portfolio – to achieve the cash flow you need to achieve financial freedom, while managing risk.

Whatever your stage of life, if you’ve ever wanted to build a dividend portfolio, this is the course for you.

We’re launching with a special launch promo – a huge discount from the official course price, and complimentary access to FH Premium thrown in!

Check out more details here.

6-month T-Bills yields fell to 3.0% at the most recent auction

In the most recent 6-month T-Bills auction, cut-off yields disappointingly fell to 3.00% (was 3.08% the previous auction).

Charted below, you can see how this has crept up slightly the past few auctions, but then went back down in the most recent auction.

Big picture wise – yields are down a lot from where they were in June 2024 at about 3.6%+, and are sitting at 3.0%ish today.

A graph showing the growth of a company

Description automatically generated with medium confidence

Despite the fall in T-Bills yields, demand remains very high.

At the most recent auction, demand jumped a whopping 27% to $17.4 billion.

You can see this charted below, demand is back to the highs hit in all of the past 24 months.

A graph showing a line graph

Description automatically generated

6-month T-Bills yields stable on the open market – trading at 3.00%

On the open market – 6-month T-Bills trade at 3.00%, exactly in line with the most recent T-Bills auction yield.

A screenshot of a computer screen

Description automatically generated

That being said – trading liquidity on the T-Bills is so thin that actually the market pricing is not that useful.

So I would caution against placing too much reliance on market pricing on T-Bills.

Market is only pricing in 3 more rate cuts the next 12 months

Nothing much has changed on the interest rate cuts front.

The market still overwhelmingly prices in a rate cut at the upcoming December Fed meeting, and 3 rate cuts in total over the next 12 months.

Because this hasn’t changed materially the past few weeks, I wouldn’t expect this to affect T-Bills yields materially.

A table with numbers and percentages

Description automatically generated

T-Bills Supply is dropping to $6.8 billion ($7.1 billion at the previous auction)

The bad news is that T-Bills supply is dropping.

Only $6.8 billion in T-Bills up for auction, a sharp drop from the $7.1 billion at the previous auction.

Auction amount tends to correlate closely with yields, so a drop in supply is not a good sign.

A graph showing a line graph

Description automatically generated

Estimated yield of 2.90% – 3.05% on the 6-month T-Bills auction? 

The market yields of 3.00%, which was the last T-Bills auction yield, is probably indicative.

But the fact that supply goes down could lead to a drop in yields.

The wildcard will be demand – whether demand holds up at last auction’s record highs, or whether it drops.

Putting everything together.

I’m probably going with an estimated yield of 2.90% – 3.05% for the next 6-month T-Bills auction.

What are the alternatives to T-Bills in this market? Fixed Deposit, Money Market Funds, Bonds?

Let’s discuss both ends of the barbell – the extremely short duration cash equivalents (<6 months), and the mid duration bonds (>1 year).

Money market fund instruments (like MariInvest) or fintech plays (like Chocolate Finance/GXS/FD) on the short end

MariInvest which is a money market fund pays about 3.0% over the past 30 days for me.

As a money market fund investing primarily in MAS Bills, it’s pretty low risk, with competitive yields, with very good liquidity (first $10,000 can be withdrawn instantly, rest is T+1 liquidity).

Alternatively, there’s stuff like Chocolate Finance that even after the drop in rates, will pay 3.6% on the first $20,000.

A screenshot of a website

Description automatically generated

Syfe Cash+ Guaranteed allows you to access institutional fixed deposit rates.

You can see the latest rates below, and frankly they are not amazing and you’re probably better off with the other instruments on this list.

A screenshot of a computer

Description automatically generated

Short duration bond funds on the long(er) end

As shared in previous articles, I quite like short duration bond funds (2 year duration or so) given where we are.

I shared my thought process in a previous article, which I extract loosely below:

My personal view, is that it’s all about risk-reward.

It is for this exact reason that I advocate building exposure at the short duration bond space, and not the long duration bond space.

If I buy bonds with a 2 – 3 year duration.

If there is indeed a soft landing, default rates will be close to zero, so I collect my 5%+ yield the next few years.

Sure if interest rates go to 5.0% I may suffer capital losses, but given the short duration nature of the bonds those losses will be manageable, and go away the longer I hold the bond funds.

If there is a hard landing, interest rates will get slashed, and there is capital gains potential on these bonds.

The complexity is that in a recession there is default risk for the underlying bonds, but I would say if you’re playing in Investment Grade credit I *think* the defaults will be manageable barring a bad recession.

But of course there is risk, and there is no free lunch in this world.

From a portfolio perspective, the way I see it, with the Feds on a rate cut cycle, it makes sense to shift some funds out of cash and into short duration bond funds.

But I want a mix of both short term cash instruments (<6 month duration) and short term bonds, to cater for a wide range of outcomes.

A screenshot of a graph

Description automatically generated

The US 2 year yield trades at about 4.2% today, so even if you stick purely to investment grade credit you’re probably looking at a 5-6% yield, even after hedging back to SGD.

I think that’s a pretty decent option in today’s market.

Now to be clear I’m not saying to park all of your liquid cash into bonds – because there are still risks involved.

But it may make sense to put a certain percentage of your cash into bond funds, to lock in a longer duration and higher yield.

At least – that’s what I’ve been doing with my own cash.

Will I start buying T-Bills again?

Will the recent pickup in T-Bills yields.

I think T-Bills are back to being competitive as a cash management product again.

Main benefit being that T-Bills are risk free, and it’s a park and forget for 6 months kind of instrument.

SGD as well – so no FX risk.

A graph showing the growth of a company

Description automatically generated with medium confidence

The drawback is (and always has been) that you cannot get liquidity back on short notice.

Which is why you cannot park all of your cash in T-Bills, and you need to have some funds in other instruments like UOB One, Singapore Savings Bonds, and so on.

Personally I’ve been splitting my cash on both ends of the barbell – short term parked primarily in UOB One, SSBs, and Money Market Funds.

And mid term parked in bond funds / bonds.

I’ve generally been letting my T-Bills roll off and using the funds to invest into markets (increasing risk exposure in anticipation of and post Trump win).

But now my risk exposure is at a place where I am comfortable where it is again (see my full portfolio shared on FH Premium).

So who knows I may apply for T-Bills again the next couple of auctions.

Would love to hear what you think though!

Will you apply for T-Bills? Or park your cash elsewhere?

Deadline to apply for the T-Bills auction on 19 Dec (Thurs)

The next 6-month T-Bills auction is on 19 Dec (Thurs).

Deadline to apply is therefore:                                                                                               

  • 9pm on 18 Dec (Wed) for cash applications (and CPF-OA applications via DBS or OCBC internet banking)
  • 9pm on 17 Dec (Tues) for UOB CPF-OA applications
A screenshot of a website

Description automatically generated

Launch of Dividend Investing MasterClass – Massive Launch Discount!

If you found the discussion above useful, and want to go into further details on how to build a dividend portfolio while managing risk.

You’ll want to check out the Dividend Investing MasterClass.

The Dividend Investing MasterClass is a complete all in one course.

That teaches you the fundamentals on constructing a dividend portfolio – to achieve the cash flow you need to achieve financial freedom, while managing risk.

Whatever your stage of life, if you’ve ever wanted to build a dividend portfolio, this is the course for you.

We’re launching with a special launch promo – a huge discount from the official course price, and complimentary access to FH Premium thrown in!

Check out more details here.

LEAVE A REPLY

Please enter your comment!
Please enter your name here