Yield for Singapore’s latest 1-year T-bill tumbles to 2.71%

SINGAPORE - Singapore’s latest one-year tranche of Treasury bills (T-bills) is offering a cut-off yield of 2.71 per cent, auction results released by the Monetary Authority of Singapore showed on Oct 17.

This is down from the 3.38 per cent offered in the auction for the previous one-year tranche in July.

Ms Frances Cheung, head of foreign exchange and rates strategy at OCBC, said the cut-off yield was below expectations and the 67 basis point (bps) drop is “slightly more than the movement in market rate would have implied”.

She added that the latest one-year T-bill result and the latest six-month yield at 3.06 per cent suggest that investors expect the six-month rate to fall to around 2.32 per cent six months later, and “this appears too low to us”.

She added: “The downtrend shall not be automatically extrapolated as a number of factors could affect the level, including US dollar rates and the liquidity situation.”

Mr Eugene Leow, senior rates strategist at DBS, also noted that the one-year T-bills take into account a longer period of US Federal Reserve easing and, accordingly, should post a lower cut-off yield than the six-month bills.

He also highlighted that investor demand in the latest round was strong.

The auction received a total of $14.7 billion in applications for the $5.2 billion on offer, representing a bid-to-cover ratio of 2.83.

In comparison, the previous auction received $15 billion in applications for the $5.1 billion on offer. “With the Fed cutting rates, interest to extend duration may be gaining steam,” said Mr Leow.

Singapore T-bill yields hit a 30-year high of 4.4 per cent in December 2022. Yields had stayed elevated during the past two years as the Fed kept interest rates high to combat post-Covid-19-pandemic inflation.

However, when the Fed kicked off its rate-cutting cycle in September with a large cut of half a percentage point, yields fell. The

six-month T-bill cut-off yield fell to 2.97 per cent

in the first auction after the rate cut, before rising to 3.06 per cent last week.

Analysts had previously said that yields are likely to grind lower over the next few months as they await further rate cuts by the US central bank.

At its rate decision in September, the Fed had pencilled in a total of 50 bps of cuts over the two remaining rate decisions in 2024, suggesting either one more large cut, or two smaller cuts of 25 bps.

THE BUSINESS TIMES