Investors still hot on less risky bets. But with waning returns, is it time to move on?

SINGAPORE: Their returns may have dipped, but Treasury bills (T-bills) are still a hugely popular option for people looking to invest their spare cash.

T-bills are debt securities issued and backed by the Singapore government, with maturities of six months or one year. They are issued via an auction process, and retail investors can apply to invest in them at DBS, POSB, OCBC and UOB ATMs or via internet banking. 

Investor interest in T-bills soared last year as yields rose, eventually peaking at 4.4 per cent in December – the highest yield on a six-month T-bill since September 1988.

With interest rate hikes slowing this year, T-bill yields slipped below the 4 per cent mark in February. Yields have since been fluctuating between 3.65 and 3.93 per cent.

Still, investor demand remains strong, with the latest auction of six-month T-bills on May 11 receiving nearly S$12 billion (US$9 billion) in applications for the S$5 billion on offer. This translates to a subscription rate of 2.4 times, up from 2.2 times in the previous auction.

Auction sizes have increased with the demand, with the next auction of six-month T-bills on May 25 having an upsized offering of S$5.3 billion.

Source: Monetary Authority of Singapore

DBS senior rates strategist Eugene Leow said he expects to “see a semblance of stability as (the) market gravitates towards a Fed pause”, with T-bill yields likely to range between 3.5 and 3.8 per cent.

The US Federal Reserve, or Fed in short, raised its benchmark lending rate for a 10th time on May 3 and signalled it may pause further increases, giving officials time to assess the fallout from recent bank failures and monitor the course of inflation.

Unless the Fed is forced to pivot due to unforeseen stresses, Mr Leow said he expects T-bills and other short-term Singapore-dollar rates to remain largely unchanged.

Mr Shawn Sng, research analyst at Phillip Securities Research, also thinks that T-bill yields have peaked and are unlikely to head back above 4 per cent.

“We can expect them to hover around the current mid-3 per cent range or even slightly lower,” he said. “Once the Fed decides to cut interest rates, we should see a more pronounced decline in T-bill yields.”

SAVINGS BONDS, FIXED DEPOSITS AND ROBO-ADVISERS

Also influenced by the Fed’s interest rate decisions, returns on the Singapore Savings Bonds and banks’ fixed deposits are headed lower as well, analysts said.

Already, interest rates for fixed deposits have fallen. Banks are now paying 3.2 to 3.55 per cent for six-month fixed deposits, down from a range of 3.5 to 3.88 per cent in February.

This is much lower than the recent cut-off yields for T-bills but for investors who prefer to know how much they are getting in return before deciding, fixed deposits remain a viable option.

As bank promotions often come with conditions such as fresh deposits or minimum placements, robo-adviser StashAway has rolled out a cash management portfolio that allows its users to park any amount into fixed deposits.

For now, fixed deposits from Citibank Singapore form the underlying funds for the new portfolio called StashAway Simple Guaranteed.

Similar to taking up a bank fixed deposit, StashAway users will receive their principal amount and guaranteed returns after a lock-in period. The return rate is currently 3.4 per cent per annum for a six-month tenor.

Other robo-advisers and online trading platforms have also added new cash management accounts that tout higher returns.

Syfe, in partnership with bond giant Pimco, launched two new portfolios last month comprising global bond funds and targeting monthly payouts from 4 to 6 per cent a year.

However, the payouts are subject to market movements and not guaranteed. A minimum investment sum of S$5,000 is also required.

Investors should also consider the fees involved when placing money with robo-advisers. 

Syfe charges management fees between 0.35 and 0.65 per cent a year. Its new bond portfolios also come with fees charged by the fund manager, at about 0.7 per cent a year. 

For now, StashAway’s Simple Guaranteed does not have management fees. But the robo-adviser’s other cash management tools – Simple and Simple Plus – charge annual fees that will be raised to 0.15 per cent and 0.2 per cent respectively from Jul 1.

BALANCING SHORT- AND LONG-TERM NEEDS

While there is still value in investing in these lower-risk options, investors should be more selective as yields decline, experts said.

For instance, the latest tranche of the Singapore Savings Bonds is offering a 10-year average return of 2.81 per cent, down from 3.07 per cent in the previous issuance.

The interest rate curve also flattened further over the 10-year period – stagnating at 2.81 per cent a year for the first seven years before inching up to 2.82 per cent for the remaining three years. This is unlike earlier tranches where return rates typically go up each year.

In this case, there is “little benefit” for investors to hold on to this savings bond for the long term, said Philips Securities' Mr Sng.

Beyond that, holding cash may also be part of the strategy to tide through the uncertain times ahead.

“The first piece of advice I would give investors is to build an emergency fund,” said StashAway CEO Michele Ferrario. “Last 15 months have been tough for markets and no one can know for sure what the year ahead may look like.” 

Such a rainy-day fund will serve as a financial safety net for unexpected situations, like a health crisis or job loss, and avoid having to borrow or sell long-term investments at a loss, he said.

That said, holding too much cash has its trade-offs, such as missing out on growth opportunities. Returns from lower-risk investments are also unlikely to keep pace with inflation so taking a long-term approach to investing remains necessary.

This will mean that investors should be less concerned about market ups and downs, and more so about investment objectives and the overall make-up of their portfolios.

To do so, investors will first have to get a better idea of their own needs and risk appetites. Investing in a diversified manner is another good rule of thumb, said Mr Sng.

Avoid trying to time the market, Mr Ferrario said, adding that investors would be better off making regular contributions to their investments which can help to smooth out market volatility in the long run.

Robo-adviser Endowus, in its annual wealth insights report released on May 10, also flagged a “worrying” trend of people investing only when they feel “the time is right”.

By timing the market, investors may be “setting themselves up to be exposed to greater risk and volatility”, it said.