In a climate of turbulent financial cycles, whether for stocks or crypto, Treasury Bills (T-bills) emerge as a stable, no-frills investment alternative. The short-term nature allows you to receive your returns over a shorter period.
Not only that, the rising-rate environments have also made T-bills more competitive than previous years. Since our T-bills are influenced by the US central bank’s rate hikes (which began in 2022 and are now at 5.25% as of 2024), their yields have in turn increased considerably from the pre-2022 levels of 0.2%.
On 1 Aug, the Monetary Authority of Singapore (MAS) held the latest 6-month T-bill auction (BS24115A), setting a cut-off yield of 3.40%,—0.02% higher than the 25 Jul T-bill auction (BY24102W) at 3.38%. While inflation is expected to stand at 2.5 to 3.5%, T-bills remain the least risky way to hedge against inflation. Here’s what you’ll need to know about your T-bill investment in 2024.
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What’s changed since the latest August T-bill auction?
After a strong year for T-bills in 2023 with yields reaching 4.0% several times, how are the interest rates currently fairing? Let’s find out.
6-month T-bill Results (As of 5 Aug 2024 )
For the 25 Jul T-bill auction (BY24102), the interest rate was 3.38% and slightly increased through 01 August. Although it might not meet the 4% hikes we saw last year, this is still a significant improvement to that of February, when our T-bill yield decreased by 0.14%.
12-month T-Bill Results (As of 5 Aug 2024)
There’s some good news for folks looking at 12-month T-bills. The latest results in April (BY24101X) showed a yield increase of 0.13%. As of 5 Aug, the interest rate is holding steady at 3.40%.
What do these results mean for Singaporeans?
All signs are pointing to a relatively stable and rewarding year for your T-bill investments. Both the 6-month and 12-month T-bills are yielding higher rates than most local major banks in Singapore and your CPF Ordinary Account, which only offers an annual interest of 2.5%.
T-bills may earn higher interest than your fixed deposits. The current best 3-month interest only reaches an average of 2.9%, while to secure the highest 12-month rate of 3.2%, you would have to deposit at least $100,000 with most banks.
2024 T-bill yield stabilised & remained high – What are the reasons?
US rate hikes’ impact on this year’s T-bill yield
As mentioned above, the MAS does not manage monetary policy through interest rates, our country’s interest rate is largely influenced by the changes in the United States.
Since 2022, the US has been in one of the largest price hike cycles ever seen, and by April 2024, it doesn’t seem to have an ending date. This can be one of the main contributions to our T-bills’ hiked-up yields. Furthermore, the upcoming US elections have slowed down any plans to decrease interest rates by the Fed.
You can expect to be compensated with high T-bill yields at least until September, as there might be a 60% chance of a potential US rate cut.
Investors’ switch from fixed deposits to T-bills
Another trend we are observing is investors are choosing T-bills over fixed deposits as the rates dipped below 3%. T-bill bids are now standing at 2.34 times higher than in 2023.
With banks (like Citi, SBI, and DBS) waiting to adjust their rates based on the US Fed’s next move, fixed deposit rates will probably stay at 2.7 and 2.9% p.a. – making T-bills the more viable option.
Upcoming T-Bill auctions in 2024
Should it slip your mind, here’s the complete list of the upcoming auctions scheduled for 2024:
12-Month Auction Dates
When in doubt, refer to the MAS for further information on the auctions.
Are there any risks when investing in T-bills?
Although T-bills offer attractive rates in 2024 and have mostly remained low-risk, similar to other investments, they are subject to unpredictable market fluctuations. T-bill yields are usually influenced by factors such as:
- Inflation rates
- Central bank policy
- The broader economic conditions
- Investor sentiment towards risk
Note: Investing in T-bills alone might not generate sufficient returns to tackle the aforementioned ongoing inflation. They should only form a part of your diversified portfolio, not the entirety of it. Furthermore, selling your T-bills prematurely will result in losses.
Here’s a quick rundown of the pros and cons when investing in T-bills:
| Pros | Cons |
| Low minimum investment requirement ($1,000) | Relatively low rate of returns |
| Can be bought & sold easily in the secondary market | No coupon interest payments in period leading up to maturity |
| For individuals, interest income earned on SGS is tax exempt | Might hinder cash flow for those requiring steady monthly income |
| Zero default risk | Potential interest rate risk |
| Good for diversifying portfolio/ mitigating risks | Have to bid through auction processes |
Source: Yahoo!Finance
Closing thoughts
T-bills remain one of the safest financial instruments and a better alternative to the current fixed deposit rates in Singapore. They can be a good entry point for those who are risk-averse or inexperienced, seeking low-risk securities to diverse portfolios.
However, it is important to consider the risks (albeit low), and potential returns compared to other investments. Take into account T-bill’s liquidity. They do not allow early redemption, so your funds are locked up for at least 6 months until maturity. If you need access before that, you can opt for a more liquid investment.
The key to successful investing is to develop a well-thought-out financial strategy and understand your own risk tolerance. Consider these factors, as well as the market’s current and future state to make the most out of your T-bill investments today.
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