6-month T-Bills Auction on 27 March – Will interest rates break 4.0% or drop further? T-Bills a better buy than Fixed Deposits and Money Market Funds?

So the next 6-month T-Bills auction is on 27 March.

After closing as high as 4.07% only a few months ago.

T-Bills yields then dropped as low as 3.54%.

In the most recent auction however, T-Bills recovered to 3.78%.

At 3.78%, 6-month T-Bills offer a much higher yield than bank Fixed Deposits (3.35%).

So I wanted to discuss a couple of questions:

1. What is the estimated yield on the next 6-month T-Bills auction?
2. Are money market funds or fixed deposits still a better buy than T-Bills?
3. Where to park cash today?

Next T-Bills auction is on 27 Mar (Wed) – (BS24106W 6-Month T-bill)

First off – next 6 months T-Bills auction is on 27 March (Wed).

Do note that because of the Good Friday public holiday, the auction is on Wed instead of the usual Thurs.

This means that:

• If you’re applying in cash or SRS do apply by 9pm on 26 March (Tues)
• If you’re applying using CPF-OA do apply by 25 March (Mon)

What is the estimated yield on the next 6-month T-Bills auction? (BS24106W 6-Month T-bill)

I’ll split the analysis up into 2 parts:

• Fundamentals perspective (economic growth, inflation, global interest rates etc)
• Technical perspective (supply-demand)

(1) Fundamentals perspective for T-Bills:

T-Bills trade at 3.78% on the open market

6-month T-Bills are trading at 3.78% on the open market.

But… T-Bill trading liquidity is incredibly thin

But we’ve seen the past few auctions that trading liquidity on the T-Bills is so thin (just look at trading liquidity in the chart above) – that actually the market pricing is not that indicative.

You’ll find that the market pricing actually takes its cue from the latest T-Bills auction.

The past few auctions where the T-Bills auction yield diverged materially from market price (whether up or down).

It was actually market price that adjusted to the latest T-Bills auction yield, rather than the other way around.

So I would caution against placing too much reliance on market pricing on T-Bills – there just isn’t sufficient trading liquidity for true price discovery.

12-week MAS Bills flat at 3.92%

The institutional only 12-week MAS Bills have been flat at 3.92%.

Sharp moves in MAS Bills are a good indicator of the trend for T-Bills.

So as of now, MAS Bills are pointing towards flattish yields.

If you are submitting a competitive bid I do suggest taking a quick look at the latest MAS Bills pricing before you apply.

If there is a sharp move up or down – that could suggest a similar trend for T-Bills (can access it here).

Expectations for interest rate cuts in 2024

The market is overwhelmingly pricing in interest rate cuts in 2024.

The market today is pricing in 3 interest rate cuts in 2024:

Given this week’s dovish FOMC, it looks like the market pricing is about right here.

Inflation may stabilise around the 3-4% range, and the Feds are going to cut interest rates anyway.

Which is going to set us up for a very exciting 2H2024, and a 2025.

That said, for T-Bills this probably wouldn’t have any meaningful impact, as the 3 rate cuts have been priced in for a while now.

From a Technicals, supply-demand perspective for T-Bills

From a more micro perspective, what matters is the supply-demand dynamics.

T-Bills Supply is going down to $6.1 billion (vs $6.3 billion previous auction)

Unfortunately – the amount of T-Bills on auction is going down again.

$6.1 billion of T-Bills vs $6.3 billion of T-Bills the previous auction.

T-Bills supply seems to be a pretty decent predictor of yields so far, so this is not a good sign and points towards lower yields.

That said you can see how the auction amount at >$6 billion is much higher than in 2023, which was in the $5 billion range.

Demand for T-Bills increased to $14.4 billion (vs $12.4 billion the previous auction)

More bad news – is that demand for T-Bills went up quite a bit in the most recent auction.

$14.4 billion in applications, up 16.1% from the previous auction ($12.4 billion).

You can see how demand at $14.4 billion is close to record high levels of demand for T-Bills:

Median Yield – Average Yield spread went up – more “lowballers”?

To illustrate what this is:

Imagine you have 100 bids.

The median yield, is if you arrange all the bids from small to high, and take the yield of the 50^th bid.

While average yield, is adding up the yields of all 100 bids and dividing by 100.

So average yields are skewed by lowball bids, while median yields are not.

To put it simply – the bigger the spread between the median yield and average yield, the more “low-ballers”.

In the latest auction – spreads actually went down quite a bit.

So the good news is that it seems investors are being quite aggressive with their competitive bids.

Average yield went up from 2.95% the last auction to 3.3% the most recent auction.

T-Bills yields only down slightly to 3.78% (vs 3.80% the previous auction)

The fact that there was such a large increase in demand, coupled with the fact that supply went down.

And yet T-Bills yields stabilised at 3.78% the last auction.

Suggests that a lot of this had to do with more aggressive bidding from investors.

Way to go fellow Singaporeans!

Estimated yield of 3.70% – 3.85% on the 6-month T-Bills auction? (BS24106W 6-Month T-bill)

Let’s put it all together.

Market is pricing in 3 interest rate cuts in 2024.

SGD interest rates have been flat the past week or so, with 6-month T-Bills yields at 3.78% on the open market.

Meanwhile demand for T-Bills has rebounded to record highs.

While the supply of T-Bills is going down slightly this auction to $6.1 billion.

Given all of the above – I think T-Bills yields should stabilise around the levels hit in the previous auction (3.78%).

All things considered I would probably go with an estimated yield of 3.70% – 3.85% on the next T-Bills auction.

Do note that this is just an estimate, and actual yields can vary if demand is very high, or bidding is funky.

Should you submit a competitive or non-competitive bid?

I usually encourage investors to submit a competitive bid (just in case there is a freak result and yields drop a lot).

And submit as close to the deadline as you can, so you can take a look at where market pricing is at that time before deciding on your bid.

But I know some investors really don’t like competitive bidding.

In which case non-competitive bidding is probably fine as well.

But do note that with non-competitive, if there is a freak result and yields drop to 3.0%, you are still forced to buy.

Which is a better buy – T-Bills vs Money Market Funds, Singapore Savings Bonds or Fixed Deposit or Savings Accounts?

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Best Fixed Deposit option? 3.35% with CIMB

The Best Fixed Deposit option I found is 3.35% (3.40% for preferred banking) with CIMB.

Minimum of $10,000 deposit.

So if you don’t want to buy T-Bills, but want something risk free (below SDIC limit), this is probably the next best thing.

Yields are much, much lower vs the latest T-Bills though, so I don’t think fixed deposit is that attractive any more.

Syfe Cash+ Guaranteed pays 3.8% – but it is NOT SDIC insured

I wrote a more detailed article on this in the Fixed Deposits post.

If you’re slightly more adventurous – you can use Syfe Cash+ Guaranteed (who then deposits the cash into a fixed deposit).

This allows you access to institutional fixed deposit rates which are significantly higher.

If you do this, these are the rates on offer – 3.80% for both 3 and 6 months:

To be absolutely clear though, Syfe Cash+ Guaranteed is NOT SDIC insured.

This means that unlikely T-Bills (backed by Singapore government) or Fixed Deposit (SDIC insured up to the limits), Syfe Cash+ Guaranteed is NOT risk free.

This is made clear by Syfe on their website:

Singapore Savings Bonds are a pretty decent buy for those who missed the boat previously

Yields on the latest Singapore Savings bonds are:

• 2.95% for the first 6 years
• 3.04% for 10 years

That’s actually pretty attractive, given that you can lock in for 10 years.

For those who missed the board with Singapore Savings Bonds a few months back at >3.0% yields, this is your chance.

Note that each person can apply for up to $200,000 Singapore Savings Bonds.

Money Market Funds pay about 3.8% – 4.1% yield

Mari Invest, which is the money market fund solution via Mari Bank in a tie up with Lion Global, pays about 3.9% – 4.1% (exact yield fluctuates over time).

Likewise Fullerton SGD Cash Fund pays about 3.6% – 3.9%.

Money Market Funds are technically not risk free though – so this is a big point to note.

I’ve extracted the asset allocation for Mari Invest below (exact fund is Lion-MariBank SavePlus).

Almost 70%+ of the assets are parked in MAS Bills backed by the Singapore government, so risk should be on the lower side.

However just like all money market funds, this is technically not risk free, and in extreme situations there is a possibility of capital loss.

The benefit though, is that you can get your money back with T+1 liquidity, which is a big plus vs T-Bills

I personally have started putting some cash of late into Money Market Funds instead of T-Bills of late, due to the liquidity benefits.

However now that T-Bills yields are back up I might move some of the cash back into T-Bills.

What to ask yourself – split cash between T-Bills, Fixed Deposit and Savings Accounts?

A lot of you have asked what to consider when deciding how much cash to split between each of the following options:

1. T-Bills
2. Fixed Deposits
3. Money Market Funds
4. High Yield Savings Accounts

The way I see it, it’s broadly a 2 step process:

1. How much liquid cash do you need?
2. Rest goes into highest yield options – based on your comfort level on risk

Key question to ask – how much liquid cash do you need?

I would say the key question to ask is how much liquid cash you need, to meet your spending needs the next 6 months.

Think about how much you need to spend.

Then think about how much cash you are expecting to come in over the next 6 months.

The difference is the amount of liquid cash you would need.

So if all of your spending needs are going to be met by your salary, or if a big bonus is coming in – then you can actually run very little liquid cash.

Whereas if you’re going to buy a house, a new car, or a big renovation, you’ll need to plan ahead and have that amount of cash set aside in liquid cash.

Some guidelines on liquidity – better safe than sorry

As a general note I would say don’t be stingy with liquidity.

It’s one of those where it’s better to be safe than sorry.

So after you run the analysis above – you’ll want to buffer for unexpected scenarios too.

For example a big medical bill that you need to pay upfront, then claim from insurance after.

A big car repair bill.

A decline in stocks that leads you to want to buy some stocks / REITs.

A loss of job, meaning no income in the short term.

Things like that.

As a general note I would say you always want to have enough liquid cash on hand to cover 6 months worth of expenses, as a worst case scenario.

Liquid Cash should go into options accessible on short notice – savings accounts, fixed deposits, money market funds

Once you have the number above.

That amount of liquid cash, should go into options that you can get back with ideally a day or two’s notice.

That will include:

1. High yield savings accounts (eg. UOB One, OCBC 360) – as a savings account you can withdraw any time
2. Fixed Deposits – can break anytime by telling the bank, although you will lose accrued interest
3. Money Market Funds – they are T+1 liquidity

Number (1) tends to have the highest interest rates, with accounts like UOB One paying a 5.0% effective interest rate on $100,000.

So that should be the priority – and you shouldn’t move on to fixed deposits or money market funds until you’ve maxxed out this option.

Singapore Savings Bonds is an outlier, because technically the money only comes back at the start of the next month.

In a worst case scenario if you just missed the redemption window, you might need to wait a whole month to get the money back:

I would say some Singapore Savings Bonds is fine as you can get the money back reasonably quickly, but don’t overdo it and put 90% of your liquid cash into Singapore Savings Bonds.

Rest of the cash goes into highest yield options – based on your comfort level on risk

Once you have the above – the rest just goes into the highest yielding option.

As of today, that’s probably Money Market Funds like MariInvest or Fullerton SGD Cash Fund.

But Money Market Funds are technically not risk free, so I know not everyone is comfortable putting their entire nest egg into something that is not zero risk.

In which case you can consider T-Bills or fixed deposits.

Picking between T-Bills vs Money Market Funds vs Singapore Savings Bonds vs Fixed Deposit vs Savings Accounts?

I would say if you want the highest short term yield, T-Bills / Money Market Funds are probably your best bet today.

The benefit of T-Bills is that it’s risk free, and you lock in the rates for 6 months, but at the cost of liquidity.

The benefit of Money Market Funds is that you can get the money back anytime with T+1 liquidity, but it’s technically not risk free, and the rates fluctuate over time.

Where am I parking my cash for liquidity?

Personally, I’ve been parking my cash in a mix of the following for liquidity:

This article was written on 21 March 2024 and will not be updated going forward.

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