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Fixed income update. 3.78% p.a. 6 months T-bill. SSB?

Friday, May 12, 2023

The latest 6 months T-bill auction gave us a cut-off yield of 3.78% p.a. which was decent enough.

Some crazy kiasu people put in very low competitive bids which drove down the cut-off yield.

This is evident when we look at what the average yield was.

Why would anyone place a bid of below 3.26% p.a. is beyond my comprehension?

Even if we were to place a 6 months fixed deposit with OCBC using CPF OA money, we would get 3.3% p.a.

This is why I say many people are selfish and this is actually worse because it harms themselves and others at the same time with a lower cut-off yield for everybody being the result.

Simply inane.

I am not doing any shameless promotion for OCBC because it is my largest investment but take a look at their promotional interest rates: HERE.

Anyway, by now, we shouldn't be surprised anymore.

I am just happy that the cut-off yield is still much higher than what DBS, OCBC and UOB would offer for 6 months fixed deposit at this point.

This is because I am just rolling money from maturing T-bills into new ones by now.

Yes, my T-bill ladder is complete and it is another source of meaningful passive income for me.

Is this going to continue?

To be sure, I do not have a crystal ball.

However, for various reasons, inflation is likely to be sticky which means interest rates will probably stay higher for longer.

The front end of the yield curve is still elevated even as the Fed has signaled a pause in rate hikes.

I know there is talk of a Fed pivot by end of the year and it could well happen but worrying about whether it will happen or not does nothing to generate income for me.

I would rather make hay while the sun shines.

Anyway, my expectation is for 6 months T-bills to remain relatively rewarding in the near future, taking into consideration that it is risk free and volatility free just like the CPF.

This helps to grow the base of my pyramid which I mentioned again recently during "Evening with AK and friends."

As for Singapore Savings Bond, like I shared last month in a blog, my mission for the year was already accomplished. 

Fortunately, that was the case too as the 10 year average yield has declined significantly in this month's offer.

A much lower 2.81% p.a. 10 year average yield doesn't cut it for me.

Better off just doing voluntary contribution to my CPF account.

Not doing shameless advertising for DBS because it is one of my largest investments but if you have a shorter duration of two years in mind, a 2 year endowment plan offering guaranteed 3.92% p.a. by DBS is a not a bad idea.

I imagine that as doing a top up to my CPF SA which I am not allowed to do anymore.

Update on saving for income.

Reminder to myself.

Why am I doing what I am doing in the fixed income space?

I want to invest in strong businesses to have peace of mind but, even more than that, I want to make sure I have a portfolio which has a stable footing as that really helps to promote peace of mind.

I always say don't do a Chicken Little.

The sky is not falling.

Don't go to extremes and have, say, 90% of our portfolio in T-bills unless we are old retirees nearing the end of our lives.

Of course, I am not saying that my way is how it should be for everybody but this works for me.

We should all have a plan, our own plan.

If AK can do it, so can you!

Recently published:

Related post:
SSB and T-bill in April 2023.


H said...

SCB esaver currently offers 3.8% for fresh funds (4% for *new* priority customers), interest based on average daily balance and no lock-in.

so to me, the SGD rate curve of 3.8% would be the lowest rate to go, for short-term/negligible maturity.

SSBs and tbills yields needs to catch-on!

WK888 said...

3.92% guaranteed is good. Any small fine prints need to be aware of?

AK71 said...

Hi H,

Ah, for savings accounts, I stick to UOB ONE account.

That pays me about 5% per annum interest with no lock in too.

Don't know how long this promotion will last.

Just have to make hay while the sun shines. :)

AK71 said...

Hi WK888,

As far as I can tell, 3.92% p.a. is guaranteed.

So, if we put in $10,000, we get back $10,800 after two years.

Must hold to maturity, of course.

Use only money we know we don't need in the next two years.

We might get more at maturity because there is a very small non-guaranteed portion but I usually ignore that.

gagmewithaspoon said...

Next T bill coming up. I have some T bill (from OA) that matured earlier this month so I will be putting that in. Then I have some more OA money. Now I am confused. How should I do this? Since my funds from the matured T bill already not collecting interest this month, I should put in a lower competitive bid? but the funds that are still in my OA should have a higher competitive bid? Seems like FDs rates are all down. what should I do? Please talk to yourself. thank you so much.

AK71 said...

Hi gagmewithaspoon,

I shared my thoughts in a recent blog on this:
Fixed income update.

I would place a competitive bid which is higher than the prevailing fixed deposit rate that OCBC is offering for a 6 months duration using CPF money.

Just slightly higher would do.

This is in case the unexpected happens.

Also, bear in mind that getting T-bill in the upcoming auction means losing 2 months of CPF OA interest as it is close to end of the month.

This won't affect money in your CPF IA but it would affect money in your CPF OA.

If you don't have a lot of money in your CPF OA now to make a significant difference in interest income, you might want to think of using it for the first T-bill auction in June.

H said...

Yeah uob ONE should be prioritised first but too bad this is capped at 100k... This scb esaver promo is good for folks exceeding uob ONE limit and dont want to have to buy nonsense bank products to get interest rate promo (ocbc, hsbc etc)

AK71 said...

Hi H,

This SCB e-Saver promo does seem like a good option like you have explained. :)

Always good to have options. :D

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