SINGAPORE - The cut-off yield on the latest six-month Treasury Bill (T-bill) auction hit a five-month low of 3.65 per cent per annum on Thursday.
That is a drop of 0.33 percentage points from the 3.98 per cent yield in the previous auction on March 2, and is the lowest since October 2022, when the yield was 3.77 per cent.
There were $12.7 billion of applications for Thursday’s auction, down from $13 billion of applications in the last auction.
The highest that T-bill yields hit in the past year was 4.4 per cent in the Dec 8 auction.
The T-bill yields then fell steadily below 4 per cent before starting to move back up again in February.
UOB rates strategist Victor Yong said the lower cut-off yield was not a surprise.
He said Singapore dollar interest rates have moved lower, taking the cue from the United States, where Treasury yields have decreased dramatically in the past week due to heightened fears of financial instability.
Mr Wong Di Ming, research analyst for global fixed income at Bondsupermart, also said the drop in the cut-off yield was within his expectations.
He said that although US regulators have largely contained any fallout from the collapse of tech lender Silicon Valley Bank, there are concerns about liquidity problems at Credit Suisse, the second-largest lender in Switzerland.
“Investors are worried that rising interest rates have created issues in the banking system,” he added.
DBS Bank’s senior rates strategist Eugene Leow said the drop shows that markets are becoming risk-averse as banking sector worries hit the US and Europe.
Mr Leow said “Fed rate hike expectations have been pared, leading to lower T-bill rates”.
The US Federal Reserve is now faced with a tough policy decision next week: Should it continue to raise rates to fight inflation, which remains high, or should it keep interest rates unchanged to mitigate the strain on the banking system?
Mr Wong said the US central bank will continue to focus on inflation data, rather than the problems created by higher interest rates.
The markets now expect the Fed to raise interest rates by 25 basis points next week, to the 4.75 per cent to 5 per cent range, according to the CME FedWatch Tool.
On March 7, markets had dialled up expectations for a 50-basis-point hike after a hawkish testimony from Fed chairman Jerome Powell.
The markets then expect the Fed to take a pause at the 4.75 per cent to 5 per cent level, before it cuts rates as early as June 2023, the CME FedWatch Tool showed.
