So the latest T-Bills auction results are out!
In my weekend article, I predicted a range of 3.65% – 3.80% on the T-Bills.
And sadly enough the actual cut-off yield came in on the lower end of that range at 3.70%.
This is despite (a) T-Bills application amounts going down, and (b) a sharp rise in yields for MAS Bills this week (while global interest rate stay flat).
So you can’t chalk up the last few auction as a freak result anymore – it does look like the recent drop in T-Bills yields is pointing to something deeper.
T-Bills yields drop to 3.70% (31 August 2023 Auction Results)
I’ve extracted the cut-off yield below.
This round of 6-month T-Bills are issued at 3.70% yield (down from 3.73% the previous auction).
Charted in graph form below.
This is one of the lowest T-Bills yields in 2023.
Yields are close to March 2023 lows, and continuing the downtrend from the past few auctions.
Demand for T-Bills went down again?
This is especially surprising when you realise that demand for T-Bills actually went down this auction.
At $11.2 billion, demand is down 5% from the previous auction ($11.8 billion).
In chart form below, you can see how the demand for T-Bills actually went down this auction.
All while the amount of T-Bills on offer is pretty much the same as the previous auction – $5.5 billion this auction vs $5.6 billion the previous auction.
So supply is flat, demand went down, and yet T-Bills yields went down.
This points to a deeper underlying trend behind the drop in interest rates.
T-Bills yields are dropping despite flat global interest rates
This is especially interesting when you consider that global interest rates have not dropped materially the past few weeks.
As shared on Twitter – MAS Bills (which predict T-Bill yield quite well) actually went up sharply earlier this week.
Yet there was no big change in T-Bills yields, which is notable.
You can see the US Treasury yields below.
Yes the US 2 year has dipped the past week or so.
But the US 1 year remains close to cycle highs – which indicates no change in market pricing for interest rates over the next 12 months.
Given that these are 6 month T-Bills, it doesn’t really explain the big drop in T-Bills yields the past few weeks.
So… global interest rates have not changed materially the past few weeks.
And demand for T-Bills is going down.
Why are T-Bills yields on a downtrend then?
Lower T-Bills yields is due to a China related flight for safety?
My current theory, is that for some reason there is a flight to safety for Asian investors.
Why exactly that is the case is not so clear.
The most obvious catalyst would be the contagion fears arising out of China.
Notably Country Garden missed out on their bond payments earlier this month, and one of China’s largest private wealth managers also missed payments on its investments products.
Perhaps investors are moving their funds into the safety of Singapore T-Bills during this period.
Which has fed back into retail investor sentiment, who are submitting lower bids in order to get an allotment.
Explaining the sharp divergence in Singapore yields vs US yields.
Whether I am correct on this I don’t know for certain.
But I would love to hear alternative theories in the comments below.
How do you know if you have been allotted the T-Bills?
There are always questions on how do you know if you have been allotted T-Bills.
The easiest way is to check if you have any refund from your bank tonight.
Some banks like OCBC will issue you a confirmation note (but DBS doesn’t).
Otherwise, I break down the different scenarios below.
If you applied Non-Competitive Bid, you will get 100% allotment of whatever you applied for.
Ie. If you applied $10,000, you get $10,000 worth of T-Bills allotted.
If you applied Competitive Bid, then:
Full allotment if you applied below 3.70%
29% allotment if you applied 3.70%
No allotment if you applied 3.71% and above.
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Demand has gone down. If investors were fleeing to safety demand would reflect that, surely, and go up.
How is the final yield actually calculated? We need to look under the hood.
It’s calculated by matching demand (via competitive bids) up to the allotted auction supply.
True, in a real flight to safety demand would probably go up, so this does suggest something more nuanced.