Latest 6-month T-bill offers 3.88% yield; March Singapore Savings Bond opens with 10-year average return of 2.9%

SINGAPORE’S latest six-month Treasury bill (T-bill) closed its auction with a cut-off yield of 3.88 per cent on Thursday (Feb 2).

The T-bills – a risk-free fixed-income product, backed by the Singapore government – were around 2.6 times subscribed for the S$4.9 billion allotment in the latest auction.

The total value of applications in this auction was S$12.9 billion. This is higher than the S$10.5 billion applied in the last T-bill auction – which had a one-year tenor – but lower than S$13.1 billion applied in the previous six-month T-bill auction.

In the latest auction, non-competitive bids totalled S$772.4 million and were fully allotted.

Those who submitted bids at the cut-off yield were allotted around 71 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.

The 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. But the yields have been falling in recent months and seemed to have peaked, after the US Federal Reserve signalled a slowdown in its rate-hike trajectory.

DBS senior rates strategist Eugene Leow noted that as long as the absolute yields of T-bills are high and comparable to fixed deposit rates, T-bills still have a role to play.

He said: “I would expect reasonable demand as investors with maturing T-bills will continue to roll as long as rates are attractive.”

On Wednesday, the March issuance of the Singapore Savings Bond (SSB) also opened with a first-year interest rate of 2.76 per cent, and a 10-year average return of 2.9 per cent.

In comparison, the February tranche offered a first-year interest rate of 2.84 per cent, and a 10-year average return of 2.97 per cent.

Interest in the SSBs, which are also backed by the Singapore government, has been on a decline as yields have fallen over recent months. The February tranche of SSBs were undersubscribed, receiving S$477.1 million in applications for the S$700 million allotment.

SSBs already saw lukewarm interest since the January tranche, with S$909.7 million in applications for the allotment of S$900 million.

SSBs take their interest rates from the average yields of Singapore government bonds from the month before. They are, however, subject to adjustments to ensure that interest rates do not dip over time for inverted yield curves, in which the yields of short-dated bills exceed those of longer-dated bonds.

DBS’ Leow expects the upside for short-term Singapore dollar rates and yields to be more limited as the US Fed chair Jerome Powell has become less hawkish in his views and the Fed tightening is probably close to an end.

But Leow noted that longer-term Singapore dollar rates and yields still look very inverted as Sing dollar rates took cues from US dollar rates.

“We are not convinced that that much inversion or pessimism in the global economy is warranted,” he said.

Some S$600 million were on offer for the March issuance. The offer will close on Feb 23 and be allotted on Feb 24, and successful applications will be issued on Mar 1.

In addition, DBS has started allowing investors to apply online for T-bills using their Central Provident Fund ordinary account (CPF OA).

The bank is currently the only local bank that accepts online applications for T-bills via CPF OA. Prior to this, investors had to apply in person at bank branches.

Online applications close two business days before each auction date. Applications via the CPF special account still have to be made at branches, while CPF funds are not eligible to apply for SSBs.