How to navigate the T-bill yield drop in Singapore

The cut-off yield on Singapore's six-month treasury bills has been oscillating around the 3% level. The most recent yield was auctioned at 3.04%, slightly increasing from the previous tranche's 2.95% auctioned on 23 January 2025. This is compared to the recent high of 3.7% auctioned on 4 July 2024.

Several other recent auctions have seen cut-off yield dipping below the 3% mark. Before these, the last time the cut-off yield fell below the 3% level was more than two years ago when the cut-off yield was auctioned at 2.99% on 1 Sep 2022. Back then, yields were on an uptrend and subsequently climbed as high as 4.40% towards the end of 2022.

Historical and upcoming Singapore T-bill auctions

Source: Monetary Authority of Singapore, data as of 5 Feb 2025.

Falling cut-off yields and impending rate cuts

As an instrument to build a passive income stream, Treasury bills have been favoured among yield hunters in Singapore. Despite the outlook of falling rates, the latest tranche, which amounted to S$7.2 billion auctioned on 23 January, received an overwhelming response with applications totalling S$15.3 billion.

The Federal Reserve is about to cut rates, with yields likely heading further down. What do such shifts in the yield markets have implications for income seekers?

Understanding T-bill rates

What are treasury bills? T-bills refer to short-term Singapore government bonds or Singapore treasury bonds that the Monetary Authority of Singapore (MAS) issues based on a regular schedule. This ensures a level of security unparalleled when considering investments in Singapore. T-bills are a low-risk investment option, offering a stable return. 

Singapore government-issued treasury bills have two maturity periods: six months and one year, allowing investors a measure of flexibility when it comes to their individual portfolios. Alternatively, Singapore Government Securities (SGS) bonds have a maturity rate between two and 50 years, appealing to the more long-term investor looking to contribute to their full retirement sum. 

In Singapore, T-bill and SGS bonds are issued through an auction process, where investors submit bids for the amount they are willing to pay. These auctions are open to all institutions and individuals, including Singaporeans, permanent residents, expats, and non-residents.

Importantly, T-bill yields are determined by this auction process, where the cut-off yield is the lowest accepted bid. 

Recent T-bill yields drop in Singapore

The recent six-month T-bill cut-off yield in Singapore has fallen to 3.02% in the recent 2 January auction. This is compared to the 18 July auction result of the cut-off yield at 3.64%.

‍Historically, T-bill rates have fluctuated, responding to various factors including global economic conditions and local monetary policies.

Despite this decrease, T-bills remain an attractive option for many, offering higher returns than some traditional savings accounts. However, it is still important to consider this development in the context of your overall investment strategy and financial goals.

Global context: T-bill yields and the Fed rates

The Singapore T-bill yields are closely linked to the US Federal Reserve rates. As the Fed now signals potential rate cuts, this is likely to influence and ultimately result in a further decrease in T-bill yields in Singapore.

Looking back at the most recent rate-cut cycle that began in August 2019, the US Fed implemented a zero-interest-rate policy, reducing the fed funds rate from 2.25% to zero. 

Coincidentally, during this period, the 6-month T-bills were re-issued in Singapore starting from July 2019, with a cut-off yield of 1.93%. 

As the global benchmark interest rates dropped, yields on Singapore T-bills declined significantly, reaching as low as 0.20% when the Covid-19 pandemic hit. These low yields persisted, remaining below the 1% mark until the Fed announced the first rate cut in March 2022.

Explaining the local impacts

Domestically, as a small country, Singapore is reliant on trade and a stable global environment. Unresolved geopolitical tensions, or even an intensification of the standoffs, and the resultant high imported costs could affect Singapore's economy.

The MAS projects the Singapore economy to strengthen over the rest of the year, for core inflation to drop in the fourth quarter and to continue falling in 2025.

As core inflation continues to ease, albeit gradually, the central bank may see less need for aggressive tightening, contributing also to lower T-bill yields.

Should I still invest in Singapore T-bills?

Many individuals have explored ways to maximise their CPF returns in the past few years through the T-bills. Rising interest rates encouraged Singaporeans to allocate a portion of their savings to these instruments. Some also turned to fixed deposits to benefit from the higher rates. 

However, this is a temporary fix as the returns historically have been subpar and are now vulnerable to falling interest rates. The recent drop in Singapore's six-month T-bill cut-off yield of around 3% indicates how this conservative way can fickle in expected yields. 

In fact, the pick-up in yields on 6-month and 1-year T-bills is fairly recent. If we look at the historical returns, a globally diversified equity market over the long term has consistently delivered superior returns compared to T-bills. 

Yields on T-bills versus returns of global equities and bonds

Of course, the volatility of returns for the equity market is higher; the average returns are also higher, fully justifying taking that risk to achieve higher returns. The way to mitigate that volatility of returns is to invest for the long term and achieve the average returns. 

While equities have outperformed fixed income in recent years, this is why balancing risk and returns is important and a balanced portfolio of equities and fixed income could meet the long-term needs of most investors. 

Determining your personal tolerance and understanding that risk is not volatility is important in achieving your financial goals. To learn more about managing your investments in changing market conditions, explore our curated section on investment strategies.