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 (MAS) indicated on Thursday (Oct 17).
This is down 0.67 percentage point from the 3.38 per cent offered in the auction for the previous one-year tranche in July.
Frances Cheung, head of foreign exchange and rates strategy at OCBC, said the cut-off yield was below expectation and the 67 basis point (bps) drop is “slightly more than the movement in market rate would have implied”.
She added that latest one-year result and the recent six-month cut-off 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 also highlighted that the one-year bill sales might have benefited from a lack of supply for the rest of the year.
“The downtrend shall not be automatically extrapolated as a number of factors could affect the level including US dollar rates and the liquidity situation,” she added.
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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 is strong. The auction received a total of S$14.7 billion in applications for the S$5.2 billion on offer, representing a bid-to-cover ratio of 2.83.
In comparison, the previous auction received S$15 billion in applications for the S$5.1 billion on offer.
“With the Fed cutting rates, interest to extend duration may be gaining steam,” said Leow.
Median yield in the latest auction stood at 2.6 per cent, from 3.16 per cent in the previous auction.
Average yield fell to 2.47 per cent, from 2.84 per cent previously.
Non-competitive bids totalled S$826.5 million and were fully allotted.
About 15 per cent of competitive applications at the cut-off yield were allotted. Those who specified a lower yield were fully allotted, and those who specified a higher yield were not.
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-pandemic inflation.
However, when the Fed kicked off its rate-cutting cycle last month 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.
Analysts had previously said that yields are likely to grind lower over the next few months as they await further rate cuts by the central bank.
At the September rate decision, policymakers had pencilled in a total of 50 bps of cuts over the two remaining rate decisions this year, suggesting either one more large cut, or two smaller cuts of 25 bps.