Yields for six-month T-bills fall below 4% following Fed rate hike

This is the first time the yield has dipped below 4 per cent since hitting a 30-year high of 4.4 per cent on Dec 8. ST PHOTO: JASON QUAH

SINGAPORE - Yields of Singapore government bonds, which have been trending downwards since the start of 2023, headed lower on Thursday, a day after the United States Federal Reserve dialled in its smallest adjustment to interest rates since March 2022.

Thursday’s auction for Singapore’s latest six-month Treasury bills (T-bills) had a cut-off yield of 3.88 per cent, the first time the yield has dipped below 4 per cent since hitting a 30-year high of 4.4 per cent on Dec 8.

The yields of Singapore securities follow US Treasury yields, which are down in 2023 and headed lower on Thursday, after the Fed raised interest rates by a quarter of a percentage point to a target range of 4.5 per cent to 4.75 per cent.

Ms Frances Cheung, rates strategist at OCBC Bank, said US Treasury yields will continue to trade in the lower ranges for now.

She added that although US Fed chairman Jerome Powell repeated that the Fed has more work to do to curb inflation, he did not make a stronger pushback against markets, which are expecting more rate cuts.

Still, Thursday’s auction for the T-bills was around 2.6 times subscribed, with $12.9 billion worth of applications for the $4.9 billion of T-bills allotted.

A similar trend was observed for Singapore Savings Bonds (SSBs). The March issue, which opened on Wednesday, is offering an average interest rate of 2.9 per cent if investors hold the SSBs for 10 years, and a first-year interest rate of 2.76 per cent. 

That is down from the February tranche of SSBs, which offered 2.97 per cent if held for 10 years and a first-year interest rate of 2.84 per cent.

For the first time, DBS enabled its customers to apply online for Thursday’s T-bill auction using funds from their Central Provident Fund Ordinary Account (CPF-OA). 

Previously, investors who wanted to use their CPF funds to buy T-bills had to visit a branch of any of the three local banks – DBS, OCBC or UOB – to submit their applications in person.

That led to long queues and sparked calls for the three banks to allow investors to apply online for T-bills with their CPF funds.

Ms Evy Wee, head of financial planning and personal investing at DBS Bank, said DBS is the first and only bank to provide this option, which it piloted on Jan 22.

She added that the response was very positive as “nine in 10 T-bill applications under the CPF investment scheme were made online for this tranche”.

Ms Wee said the service is currently available only on Internet banking, and DBS eventually aims to allow customers to apply for T-bills with their CPF-OA funds through its mobile app as well.

To use the i-banking service to apply for T-bills using CPF-OA, customers will need an active CPF investment account with DBS Bank, Ms Wee added.

They also have to pay a transaction fee of $2.50 (before the goods and services tax) for each application. All online applications must also be submitted at least two business days before the auction date by noon, she said.

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