Cut-off yield on 6-month T-bill drops to 3.54%; SSB 10-year return at 2.88%

SINGAPORE’S latest six-month tranche of Treasury bills (T-bills) is offering a cut-off yield of 3.54 per cent, according to auction results released by the Monetary Authority of Singapore (MAS) on Thursday (Feb 1).

This is down from the 3.7 per cent offered in the previous six-month auction, which closed on Jan 18.

Demand remains strong in the latest auction for the T-bills. The bills received a total of S$14.6 billion in applications for the S$6.3 billion on offer, representing a bid-to-cover ratio of 2.32.

In comparison, the previous six-month tranche received S$13.6 billion in applications for the S$6.4 billion on offer.

Frances Cheung, rates strategist at OCBC, said the relatively low cut-off yield and high demand likely signal that investors prefer to lock in returns at current levels, as they expect rates to go lower from here.

The recent dovish tilt at the European Central Bank and confirmation of peaked rates by the Federal Reserve were likely factors adding to market conviction on lower rate expectations, she added.

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DBS senior rates strategist Eugene Leow also noted that the trend of lower cut-offs has continued – first in MAS bills, then the one-year T-bills, and now the six-month T-bills.

“This generally reflects flush liquidity conditions in the financial system, and participants are keen to put their monies to work,” he said.

Leow expects demand for the T-bills to remain resilient. “In absolute terms, yields above 3 per cent still look high as we look over the past decade.”

Non-competitive applications totalled S$2.2 billion and were fully allotted in the latest auction.

Around 65 per cent of competitive applications at the cut-off yield were allotted. Those who specified a lower yield were fully allotted, and those who specified a higher yield were not allotted.

Yield on the T-bills hit a 30-year high of 4.4 per cent in December 2022, but it has hovered mostly around the 3.7 to 3.8 per cent range since March 2023.

Meanwhile, the latest one-year tranche of the bills, which closed on Jan 25, offered a cut-off yield of 3.45 per cent. Then, market watchers noted that this tracked declining trends in the US one-year T-bill yield, as debt markets have been pricing in interest rate cuts.

On Thursday, MAS also opened the latest tranche of Singapore Savings Bonds (SSBs).

The SSBs, which will be issued in March, offer a first-year interest rate of 2.74 per cent, and a 10-year average return of 2.88 per cent.

In comparison, the February tranche offered a first-year interest rate of 2.72 per cent, and a 10-year average return of 2.81 per cent.

DBS’ Leow noted that for most of January, 10-year Singapore Government Securities (SGS) yields rose in tandem with US yields, as economic pessimism fades.

The one, two, five and 10-year benchmark SGS yields are used as reference to calculate the step-up coupon rates for SSBs.

Meanwhile, demand for SSBs has fallen in the recent tranches.

While demand for SSBs reached S$1.9 billion in applications for the S$1 billion on offer in the December 2023 tranche, the latest February 2024 tranche saw only S$175.2 million in applications for the S$900 million on offer.