SINGAPORE – The interest rate for the latest auction of Treasury bills (T-bills) is at a 30-year high, but demand for the government-backed product appears to be waning amid better deals on offer at the banks.
The auction on Thursday saw a yield of 4.4 per cent – up on the previous high of 4.19 per cent at the auction on Oct 27 and inching towards the record levels seen in the 1990s.
Yields hit 5.5 per cent at an auction in September 1990 and 5.52 per cent at one held a week after.
Thursday’s auction offered $4.6 billion worth of T-bills to retail investors – the same amount as the October issue.
But there were only $9.3 billion in applications this time, down 14.7 per cent from the $10.9 billion in October.
That gave a bid-to-cover ratio of 2.03, meaning the dollar amount of T-bills applications was 2.03 times the amount being sold – down on the 2.38 ratio in the October auction.
Lab technician Dallas Goh, 31, did not bid this time, noting that he can get higher interest of 5 per cent a year in a UOB One savings account.
Fixed deposits have also become more attractive to retail investors.
UOB is offering between 3.55 per cent and 3.95 per cent a year for deposits of six-, 10- and 12-month tenures, and OCBC Bank is giving rates of 3.4 per cent to 3.9 per cent for deposits of 12 months.
Housewife Michelle Goh, 55, is an investor still keen on T-bills. She applied for $10,000 of six-month T-bills after her fixed deposit expired and received the full amount on Thursday.
Madam Goh will also get a refund of $219.40, which is the interest she would earn for keeping her money in the T-bills.
The $219.40 works out to an annual interest rate of 4.4 per cent as T-bills are sold at a discount to face value.
When her T-bills mature in six months – June 13, 2023 – Madam Goh will get back the $10,000.
Blogger Financial Horse said the yield of 4.4 per cent for this T-bill is in line with market pricing.
Financial Horse uses the latest 12-week MAS bill to gauge the expected yields for the six-month T-bills.
The 12-week MAS bill trades at 4.49 per cent.
The Monetary Authority of Singapore issues four-week and 12-week MAS bills to institutional investors. Its 12-week one is the closest in terms of duration to the six-month T-bills issued to retail investors.
The last T-bill auction for the year is on Dec 21.
Financial Horse said it is very hard to predict how high the yields will go because of how the bidding process works. A lot depends on investor demand and how much they will bid. If there are more bids coming in at higher yields, the yield will likely be higher.
Mr Goh said he is waiting for the US Federal Reserve meeting next week before he decides if he will use funds from his Central Provident Fund Ordinary Account (OA) to bid for T-bills.
The OA offers a rate of 2.5 per cent, 1.9 percentage points lower than the 4.4 per cent yield in Thursday’s auction.
The US Fed meets on Dec 13 and 14, and is widely expected to raise its federal funds rate by half a percentage point to the 4.25 per cent to 4.5 per cent range.