Latest one-year T-bill offers cut-off yield of 3.45%

SINGAPORE’S first one-year Treasury bill (T-bill) of the year is offering a cut-off yield of 3.45 per cent, according to auction results released on Thursday (Jan 25).

Yields have fallen from the last offering of the one-year tranche in October 2023, which had a cut-off yield of 3.7 per cent.

For the first time in a while, the yield on the one-year T-bill is also lower than fixed deposit rates offered by some banks.

Meanwhile, the latest six-month tranche of the bills, which closed on Jan 18, offered a cut-off yield of 3.7 per cent.

Aaron Chwee, head of wealth advisory at OCBC, said the yields were not surprising given that the US one-year T-bill yield has also been on a similar declining trend, as debt markets have been pricing in interest rate cuts by the Federal Reserve.

“This means that markets expect interest rates to be lower this time next year, and thus the one-year yield has fallen accordingly,” he said.

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Nevertheless, Chwee noted that yields are still attractive compared to historical levels, as well as most fixed deposit rates.

Demand remains strong in the latest auction for the one-year T-bills.

The bills received a total of S$14.4 billion in applications for the S$4.5 billion on offer, representing a bid-to-cover ratio of 3.19.

In comparison, the previous one-year tranche – which closed on Oct 19, 2023 – received S$11.9 billion in applications for the S$4.5 billion on offer.

Eugene Leow, senior rates strategist at DBS, noted that domestic liquidity appears to have become more flush, driving the cut-off yield lower.

“Demand could well spill over into the upcoming two-year Singapore Government Securities auction,” Leow said.

Non-competitive applications totalled S$1.8 billion and were fully allotted in the latest auction.

Around 17 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.

Looking ahead, Chwee expects demand to stay healthy, but may start to slow towards mid-2024.

He noted that the US is expected to cut rates in the middle of 2024.

“When US rate cuts begin, the further reduction in yields may lead some investors to seek better risk-adjusted returns, dampening demand.”

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.

Nevertheless, demand for the T-bills has remained strong as they continued to yield higher returns amid the high interest rate environment.