Singapore’s latest six-month Treasury bill offers decades-high yield of 4.4%

THE cut-off yield on Singapore’s latest six-month Treasury bill (T-bill) that closed on Thursday (Dec 8) shot up to 4.4 per cent, the second highest since the return last peaked at 4.73 per cent in 1988.

The risk-free, fixed-income product by the Singapore government was about two times subscribed for the S$4.6 billion allotment in the latest auction, with the non-competitive bids totalling S$1.2 billion being fully allotted.

Those who submitted bids at the cut-off yield of 4.4 per cent were allotted 82 per cent of what they applied for. Those who specified a lower yield were fully allotted, whereas those specified a higher yield were not allotted.

The total value of applications amounted to S$9.3 billion, down from S$11.9 billion in the auction a fortnight ago.

Eugene Leow, senior rates strategist at DBS, has expected yields on T-bills for auction in December to edge up to a tad above 4 per cent, close to the levels seen in October. He noted: “We still have to contend with a 50 basis point hike in December; and December has seasonality that could lead to higher short-term rates.”

Leow was referring to the United States Federal Reserve’s upcoming rate hike on Dec 14, where the market is now expecting a lower increase of 50 basis points.

The last time yield on Singapore T-bills was above the 4 per cent level was in October at 4.19 per cent, while the highest yields before that were 4 per cent in 1989 and 4.73 per cent in 1988, according to data from the Monetary Authority of Singapore (MAS) website dating back to 1987.

After October’s high yield, the number of bids surged to over 92,000 on Nov 10.

Fierce competition among banks for cash has benefitted yield-hungry investors, with current fixed deposit rates after several rounds of raises now being around 4 per cent.

T-bills have received explosive investor interest lately. In a non-competitive bid for T-bills, the investor specifies only the amount to invest and accepts the cut-off yield. Investors who would want to invest only if the yield is above a certain level submit competitive bids.

Up to 40 per cent of the total issuance amount will be allotted to non-competitive bids first. If the amount of non-competitive bids exceeds 40 per cent, the bond will be allocated to non-competitive investors on a pro-rated basis, with the balance of the issuance amount going to competitive bids, from the lowest to highest yields.

T-bills are issued at a discount, and investors get back the full face value at maturity. The bills can be purchased with cash, Supplementary Retirement Scheme funds or Central Provident Fund (CPF) monies, although investors who choose to use their CPF savings have to drop in personally at the branches of any of the trio of local banks.

The CPF Board has earlier stated that the banking trio are targeting to allow online applications for Singapore Government Securities (SGS) products, including Treasury Bills, using CPF funds, in the first quarter of 2023.

With yields from Treasury bills elevated, current account and savings account holders have deployed their funds to the risk-free bond, prompting banks to raise their interest rates; at least one of them has launched a fixed deposit for CPF funds.