Latest 6-month T-bill offers 3.85% yield; demand falls as banking crisis weighs on rate hike expectations

SINGAPORE’S latest six-month Treasury bill (T-bill) closed its auction with a cut-off yield of 3.85 per cent on Thursday (Mar 30).

This was higher than the last auction, but demand was lower as investors factored in the impact of the banking crisis on interest rates and expressed a preference for instruments with a longer tenor.

The latest tranche of T-bills – which are risk-free fixed-income products backed by the Singapore government – was around 2.2 times subscribed for the S$4.3 billion allotment.

The total value of applications in this auction was S$9.6 billion, down from S$12.7 billion in the previous six-month T-bill auction, even as the cut-off yield rose.

Until Thursday’s auction, investors had been pricing in lower yields on expectations that the US Federal Reserve is nearing the end of its rate hiking cycle. The previous issuance had a cut-off yield of 3.65 per cent, the lowest since an issuance last September.

Nevertheless, market watchers said the demand reflected changed market sentiment caused by the collapse of several banks – particularly Silicon Valley Bank in the United States and Credit Suisse in Europe.

Eugene Leow, senior rates strategist at DBS, noted that the bank failures over the past three weeks have stoked speculation that the Fed may have to cut rates earlier than initially anticipated.

In the US, this resulted in investors flocking to money market funds and US Treasuries or bills, although the system in Singapore “appears much sounder”, Leow said.

Aaron Chwee, head of wealth advisory at OCBC, said the Credit Suisse fallout has affected the fundamental view of fixed income instruments and noted that investors are concerned at how quickly the bank fell.

He said: “Moving forward, fixed income buyers may require a higher return or a higher discount.”

Against this backdrop, some banks have lowered the interest rates offered on their fixed deposit accounts in recent weeks.

But when asked if this could have had any impact on applications for T-bills, Gerald Wong, founder and chief executive of investment advisory platform Beansprout, said it is unlikely. He expects global macro developments to have a more significant direct impact on the demand for T-bills.

In the latest T-bill auction, non-competitive bids totalled S$539.1 million and were fully allotted.

Those who submitted bids at the cut-off yield were allotted around 12 per cent of their application. Meanwhile, those who specified a lower yield were fully allotted, and those who specified a higher yield were not allotted.

Singapore’s T-bills attracted strong investor interest last year as their yield hit a 30-year high of 4.4 per cent for the six-month tenor in December, on the back of rising interest rates globally. Demand has since fallen in tandem with yields.

Singapore Savings Bonds (SSBs), however, are seeing a spike in demand – judging by the latest allotment.

On Wednesday, it was announced that SSBs for the April issuance had received a total of S$758.1 million in applications. This was up significantly from the total of S$261.1 million in applications for the March issuance. A maximum of S$700 million in SSBs were offered and allotted through the quantity ceiling format.

DBS’ Leow said this may be because SSBs have a lower reinvestment risk than T-bills.

Leow said: “The key motivation for people would be to lock in higher yields while they can as worries about recession build.”

This tranche of SSBs also offered a higher yield than previous tranches – at a first-year interest rate of 3.01 per cent, and a 10-year average return of 3.15 per cent.