6-month Treasury bills still popular as investors seek ‘safe’ investments

SINGAPORE – Returns for six-month Treasury bills (T-bills) slipped back again on Thursday after recording a modest rise in the previous auction on March 30.

The cut-off yield came in at 3.75 per cent, down from the 3.85 per cent registered on March 30 and markedly lower than levels registered in 2022 but still more attractive than banks’ fixed deposit rates.

But subscription numbers are back up – there was $12.3 billion worth of applications for the $4.8 billion of T-bills offered. That was notably higher than on March 30, when there was $9.6 billion worth of applications for the $4.3 billion of T-bills up for grabs.

Mr Lim Teng Chong, assistant manager for global fixed income at Bondsupermart, said Thursday’s lower cut-off yield is in line with his expectations that short-term interest rates will fall in the near term, as the United States Federal Reserve nears the end of its hiking cycle.

Mr Lim added that “the recent banking crisis has also put pressure on the Fed”, so it will be “more cautious and not raise interest rates aggressively”.

At the same time, he noted that fears of a recession are growing in the wake of the US banking crisis. This, in turn, has prompted investors to seek safer investments, resulting in the higher subscription numbers for Thursday’s T-bills.

These numbers brought the bid-to-cover ratio up to 2.56, which means there was $2.56 worth of applications for every dollar of T-bills offered. The bid-to-cover ratio in the March 30 auction was 2.23.

Mr Eugene Leow, senior rates strategist at DBS Bank, said that “investors are now more worried about recession risks than inflation risks”.

He noted that “demand for safety is likely to put a cap on the T-bills cut-off yield, even if the Fed does hike rates once more in May”.

The cut-off yield has stayed above 3 per cent since Feb 2 but failed to scale the heights hit between Oct 27, 2022, and Jan 18, 2023, when it reached 4 per cent or so.

Ms Frances Cheung, rates strategist at OCBC Bank, said that “a retest of the 4 per cent level cannot be ruled out, as rate cuts are not imminent”.

The US Fed hiked interest rates by 0.25 percentage point to a range between 4.75 per cent and 5 per cent in March, with indications that a similar rise is pencilled in for early May.

The cut-off yield of 3.75 per cent for Thursday’s auction means this tranche of six-month T-bills has also become more attractive than fixed deposits at local banks.

OCBC has a promotional offer of 3.5 per cent for a minimum of $20,000 placed for six months.

UOB is promising 3.55 per cent for a minimum placement of $10,000 for either six or 10 months.

The T-bill auction next Thursday will be for one-year T-bills. Market watchers expect more interest as investors try to “lock in a decent rate of return” over a longer investment period.

OCBC’s Ms Cheung said there will be incentive for investors, “especially if their view is for rates to go down over a one-year horizon”.

Bondsupermart’s Mr Lim added that one-year T-bills are issued only four times a year, while those for six months are issued 25 times a year. “That could draw some demand for the one-year T-bills, as they are not as frequent as the six-month T-bills,” he said.