Yield for latest 6-month Treasury bill in Singapore dips to 4.2%

SINGAPORE: The latest Singapore six-month Treasury bill (T-bill) is offering investors a yield of 4.2 per cent per annum, according to results from the year’s first auction released on Thursday (Jan 5).

This is a dip from the cut-off-yield of 4.28 per cent reported for the previous auction held on Dec 21.

T-bills are short-term debt securities issued and backed by the Singapore Government, with maturities of one year or less.

Like Singapore Savings Bonds – another type of Singapore Government Securities – T-bill rates climbed rapidly last year as global central banks went and continue to go on a rate-hike race to curb inflation.

The yields on the six-month T-bills started 2022 at 0.55 per cent and rose steadily to breach 4 per cent in end-October.

Returns touched a multi-decade high of 4.4 per cent in the auction on Dec 8 - the highest yield on a six-month T-bill since September 1988 when the rate peaked at 4.73 per cent.

Moving forward, yields may start to moderate given expectations for the United States Federal Reserve to go for smaller and slower interest rate hikes before taking a pause later in the year.

“I think this year or maybe going into next year, the 4 per cent T-bills will look like a transitory phenomenon (once) rates have peaked,” said DBS Bank’s senior investment strategist Daryl Ho, adding that investors may start considering shifting their attention to other assets that offer similar returns over a longer period.

Demand remains strong for now. The latest T-bill auction received applications amounting to S$12 billion for a total allotment of S$4.7 billion.

All non-competitive bids of S$1.4 billion were allotted in the latest auction, while about 27 per cent of competitive bids were allotted at the cut-off yield.

T-bills are issued via an auction process where competitive and non-competitive bids are placed. 

A competitive bid allows applicants to specify the yield they are willing to accept, while a non-competitive bid is one where investors only specify the amount they want to invest but not the yield.

At each auction, up to 40 per cent of the total issuance size will be allotted to non-competitive bids. If the amount of non-competitive bids exceeds this limit, the allotment will be made on a pro-rated basis. 

Those with successful bids will be allotted the T-bill at the cut-off yield, or the highest accepted yield among successful competitive bids submitted at the auction.

Unlike Singapore Savings Bonds where interest is paid out twice a year, T-bills are issued at a discount and investors will receive the full face value at maturity.

For example, if you applied successfully for a six-month T-bill, you will first receive the full interest – calculated based on the cut-off yield – and get your full principal back when the T-bill matures six months later.

The latest T-bill is set to be issued on Jan 10 and will mature on Jul 11.