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4% yield T-bill 3.2x oversubscribed! What's my plan?

Saturday, November 12, 2022

Latest 6 months Singapore Treasury Bills (T-bills) auction had a record 95,000 bids! 

Total amount applied for? 

$14.2 billion!

I only got half of what I applied for.

Yield at 4.00% p.a. is lower than the 4.19% p.a. from the previous round.

What to do?

Will just have to apply for a larger amount in the next auction in case it gets heavily oversubscribed again.

Somewhat disappointed that the yield isn't higher.

This is on top of being disappointed that I did not get the full amount I applied for. 

Well, it is just too bad that the demand is so strong that a lower yield is acceptable to competitive bidders although I think it is stupid to bid so low.

Won't be surprised some might have put in super low bids like 3% yield to make sure they get full allocation.

Every man for himself, I guess.

Risk free and volatility free T-bills.

Relatively attractive yield (while it lasts.)

In a strong currency like the Singapore Dollar.

What's not to like?




Buying Singapore Treasury Bills (T-bills) is a relatively new activity for me as I was never interested in T-bills in the past due to the very low yields offered.

Things have quite obviously changed and not just for me but, evidently, for many people too.

This first round of auction in November is my 3rd time taking part. 

The first two rounds for me were in October and those 6 months T-bills offered yields of 3.76% p.a. and 4.19% p.a.

My plan is still to divert cash from maturing fixed deposits into T-bills. 

Specifically, 6 months T-bills.

I did not say this before but, to be clear, not all the funds from maturing fixed deposits will be diverted into T-bills.




I used to have many more bank accounts but, in my retirement, for the sake of simplicity, I have reduced the number to only four.

There are different reasons for keeping these four bank accounts active and the others which I found I could do without were closed.

Yes, I can be absolutely ruthless just like what I did with my credit cards, reducing from more than ten cards to just three cards now.

I would like to keep only one credit card but it is good to have another card or two just in case.

Anyway, before I ramble off, back to the topic at hand.

Growing old.

Mind goes wandering a lot more.




I will renew some fixed deposits when they mature at higher interest rates offered by the respective banks for a couple of reasons.

First reason is because I am mental and I would feel poor without seeing some meaningful amount of savings in my bank accounts.

OK, jokes aside, long time readers of my blog might remember that I have an outsized emergency fund as I not only consider my own needs for the next 24 months but also my parents' needs and, to a more limited extent, my siblings' needs.

So, to people who are not in the know, my emergency fund might look excessive but it really isn't.

Well, at least not to my mind.

If you are new to my blog or would like a refresher on my take on an emergency fund, you will find that and more in this collection of blogs:

Survivability and opportunity.





The nice thing about fixed deposits is that I could terminate them pretty easily, get back my principal sum right away with no loss of capital.

Second reason is because I want to maintain my relationship with these four banks as they are useful to me in different ways. 

I do not want to terminate my accounts by shifting all my funds from fixed deposits into T-bills.

It would be too much work for me to rewire things and maybe even reopen accounts when things change again.

We never know what might happen and there is some comfort in familiarity which is OK as long as it isn't harmful.

Yes, old man doesn't like too much change.

So, I suppose I will let the banks make some money because I am such a nice person.




Anyway, more on my plan with T-bills.

I will probably be taking part in T-bill auctions with fresh funds until March 2023 as long as the yields remain relatively high.

This means that with 2 auctions a month, it would be a total of 12 auctions by end of March 2023.

Then, it would just be recycling funds from maturing T-bills into new T-bills from April 2023.

Doing this, together with Singapore Savings Bonds and my CPF savings, the investment grade bond component of my portfolio is going to grow pretty significantly.

Is AK de-risking his investment portfolio?

I don't think so since it is mostly moving money from my bank accounts to bonds. 

Of course, I should also say that if T-bills should see yields plummet due to an overly competitive (and inane) landscape, I could just stay with fixed deposits which are offering increasingly tempting interest rates.

Just as a hedge, I would probably renew a one year fixed deposit with CIMB this month as they are offering 3.8% p.a. for a one year tenor now.

So, am I expecting the next T-bill have a yield of less than 4%?

Well, like I said, it depends on how competitive (and inane) people get.




This development (i.e. larger exposure to T-bills and SSBs) should result in a more resilient investment portfolio and also provide greater certainty in terms of meaningful passive income generation.

We don't know what we don't know but, from time to time, we have more clarity.

Don't throw caution to the wind but we don't want to be overly cautious either.

Stay pragmatic.

Stay invested but be prepared for the possibility that things could get worse.

Cash is not trash and I am talking about the Singapore Dollar, of course.

"We never want to count on the kindness of strangers in order to meet tomorrow's obligations." 

- Warren Buffett

Recently published:
1. HS Tech ETF: Buy or Sell?
2. IREIT Global: Update and buy?
Related posts:
1. 4.19% yield! What is next?
2. Growing passive income.
Resource: Apply for T-bills?




20 comments:

Sandra said...

Well, quite disappointed that I did not get any allotment this round...(I assume since as at this point, no deduction from OA account)....So applying for both SSB and T-bills seems like buying lottery?? Lady Luck must like you 😐

AK71 said...

Hi Sandra,

I didn't put in any competitive bid.

Just a non-competitive bid which means I accept the cut-off yield, whatever it might be.

Will definitely get something this way.

Luck is important in life too and, often, we can only hope for the best.

Yv said...

Hi

I submitted both a non-competitive and a competitive bid, and got half of the non-competitive bid. Totally did not expect that I cannot even get the full amount of the non-competitive bid submitted.

Will submit again in the next tranche, laddering the maturities every other 2 weeks

Aa said...

Hi Sandra
I thought for CPF deduction is only made on 15/11

AK71 said...

Hi Yv,

Will see how the next few auctions go.

If the yield keeps falling, I wouldn't bother putting my CPF-OA money in T-bills which I planned on doing in the new year as I expected the yield to rise to maybe 5% p.a. or close to that.

A 1% difference in yield or a 3.5% yield on T-bill really is not strong enough an incentive for me to make a trip to the bank to apply with my CPF-OA money.

Creating a 6 months T-bill ladder, however, still makes sense.

Well, it makes sense until fixed deposits' interest rates close the gap which, as of now, looks like it could happen as the Fed is still talking about hiking interest rate into 1Q 2023.

Yv said...

Hi AK

Oh, i haven't been using CPF at all, it's pure cash. I am based outside SG for work and return once a month for a couple of days each month. My time in SG is too precious for me to waste time joining the queue at the Bank at the current rates :p

I read from some of much older posts that you have purchased an Integrated Plan. I also have an NTUC Income Advantage plan that allows me to stay in A wards. However, I have been thinking whether I should downgrade to just a simpler plan. Can you talk to yourself about why you opted for an IP? I don't think I need to stay in an A-class. B1/B2 should be good enough, but maybe the option to be able to choose my doctors is important, is that something that Medishield Life cannot provide?


AK71 said...

Hi Yv,

I didn't think you used your CPF-OA money either because we had this chat before and both of us agreed that the yield on T-bill must go much higher for it to make sense, if I remember correctly.

I was just thinking aloud there on my own situation.

I am based in Singapore, unlike you, in case you didn't notice. LOL. ;p

Still, my time is too precious to be spent in a long queue at the bank too.

I would rather be gaming. ;p

As for NTUC Incomeshield, I think we should just go for the the top tier plan if we can afford it.

My mom is in her mid 70s and her premium is maybe $8K a year now but I told her not to downgrade and I have been helping with the payment.

We have been hospitalized for different reasons before and sharing a room with even 3 other people is not ideal especially if we really need the peace and quiet.

There is also the option of staying in a private hospital in case government hospitals are crowded out.

Some money, I don't try to save.

Reference:
Enhanced Incomeshield for my mom.

Yv said...

Thanks for your frank and sound advice, AK.
Happy gaming!

AK71 said...

Hi Yv,

Alamak, where advice? Where? Where?

I don't see any.

AK is just talking to himself, as usual. ;p

Sandra said...

Hi Aa, based on my previous successful applications, the deductions were made on the Saturday before the issuance date. This round I too had put in a non-competitive bid, and like AK, will probably get a partial allotment. Probably the CPF deduction is still in WIP status, due to the overwhelming number of applications.

Ang said...

Hi AK, would like to ask if you know how the cut off yield is determined? If some weirdo decides to put in 1% yield in their competitive bid, does it mean cut off yield will be at 1% for the T-Bill? Sorry for the newbie qns :P

Blkh said...



Hi AK…

Would you consider RHB bank… 12 months FD.. 3.9%..

Thanks
Bern

AK71 said...

Hi Ang,

It is an auction.

So, it depends on how bidders behave.

As the amount of T-bills on offer is limited, some people will bid low in order to have a higher chance of getting their bids filled as the bids which are willing to accept lower yields are cheaper for the government and will be filled first.

The bids at gradually higher yields will be filled next until all T-bills have been allocated and the highest yield at which this happens is the cut off yield.

Those desperate bidders who put in bids with very low yields could cause the cut off yield to drop which was what happened in the most recent auction.

AK71 said...

Hi Bern,

I don't have a relationship with RHB.

Won't bother opening an account with them just to get 0.1% more.

Lazy lah.

Thanks for letting me know. :)

Rookie said...

Hi AK,
Can you share your thoughts on the latest CDG's business update?
YOY results seem ok but not the quarterly results comparing last 2 quarters.

Thanks!

AK71 said...

Hi Rookie,

Given the relatively low base, it is pretty easy for CDG to beat results, year on year.

What Mr. Market was looking for was sequential improvement, quarter on quarter.

The latest business update has probably disappointed Mr. Market.

Reference:
Add ComfortDelgro or DBS, OCBC and UOB?

Siew Mun said...

This may be another viabld option. u can use your CPF OA to put into OCBC FD for 3.4%
Example CPF OA
500k x 2.5%x 13 mths=$13, 541.66
500k x 3.4%x 12 mths = $17,000
that is $3458.33 more interest

https://www.businesstimes.com.sg/banking-finance/ocbc-offers-fixed-deposit-placements-for-cpf-ordinary-account-savings-at-34-a-year

AK71 said...

Hi Siew Mun,

I saw that article.

I am not sure if getting 0.5% p.a. more is the best option.

Will wait and see because interest rate is probably going higher into 2023.

Also, could other banks follow OCBC's example and make better offers?

Let's continue to watch this space. :)

Blkh said...

DBS FD has 3.8% over 5 months…

Do we still want OR need to apply for T bill?
4.x % over 6 months…

FD call withdrawn.. T BILL cannot withdraw..

Thanks sir

AK71 said...

Hi Bikh,

The 5 months DBS FD promotion offering 3.8% p.a. is a good option too.

I applied for it using the DBS App with the Promo Code SR7M.

The message just popped up when I logged in a few days ago.

The other advantage of this is that we know for sure we will get 3.8% p.a.

With T-bill, we don't know what the yield is going to be until after the auction is over.

Still, I will apply for T-bill since it isn't too difficult and I could still get more than 3.8% p.a.

Crossing fingers.


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