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3.75% p.a. cut-off yield for T-bill. Disappointing.

Wednesday, November 8, 2023

The results for the 6 months T-bill auction came out at 5pm or so.

I made a short video on this soon after.

In a nutshell, I was disappointed.

I did make a video a few days ago saying that we could see 3.88% p.a. based on the daily SGS prices and yields published by the MAS.

Of course, I didn't expect an exact match but 3.75% is even lower than the auction that took place one month ago.

That gave 3.87% p.a.

The last time it was lower was 2 months ago in September at 3.73% p.a.

Anyway, as I was using cash, I just placed a non-competitive bid.

This is so that I would get at least some of my application filled if there was a high level of interest.

Well, only 95% were allotted.

This means that if we had applied for $20K, we would get a refund of $1K.

To be fair, a cut-off yield of 3.75% p.a. is not bad.

It is still more than what most 6 months fixed deposits would pay, and if we consider the fact that the interest is paid at the start of the duration, it is actually more than 3.75% p.a.

So, disappointed I may be but not too much so.

Think positive!

Better for my mental health!

As for people using CPF-OA money, I always say to do competitive bidding because we do not want to be a victim of the unthinkable.

I have said in the past that a sensible competitive bid would be one that would not cause us to lose out on interest income in the end.

So, using CPF-OA money, the break-even is about 3.33% p.a. and since we should be aiming for more than breakeven, a competitive bid of 3.5% p.a. makes sense.

(3.33% p.a. takes into consideration the possibility of losing 8 months of CPF-OA interest.)

To be honest, unless the amount is significant, the difference in interest income is not going to be very meaningful.

I think this is not hard to understand.

So, I wouldn't be too worried if the amount of  CPF-OA money involved is, say, less than $50K.

So, until the next T-bill auction, it is back to my games.

If AK can do it, so can you!


SnOOpy168 said...

I was hoping for 4%. But....

From a telegram group, somebody bragged that it put 3.5% or lower to guarantee they would get the bid. Why throw away good interest earnings like this?

Sure lah, this mentality works for COE bidding la. Now those who got their ride with the $152k COE, sucking their thumbs using Dyson lor.

This is a good reminder about the Competitive Bid to set a minimum floor %, when using CPF-IS. As usual, appreciate you talking to yourself. Cheers

AK71 said...

Hi SnOOpy168,

Good to hear from you. :)

It doesn't help that there are social media influencers who tell people to bid under 2% to get their applications filled.

Plain madness, especially for those who are using their CPF-OA money.

It just boggles my mind.

Unknown said...

Hi AK, I am curious how we may have the possibility of losing 8 months of CPF-OA interest as you mentioned.

AK71 said...

Hi Unknown,

CPF calculates interest monthly based on our lowest balance in the month.

So, the moment CPF money is withdrawn that month, it loses interest income for that month plus the subsequent 6 months in a T-bill.

This makes 7 months.

However, if we use CPF money to buy T-bills which are issued very close to the end of a month, when the T-bill matures, we might not have enough time to transfer the money back into the CPF-OA.

In such an instance, if the money only makes it back into the CPF-OA in the next month, we would lose another month of interest income which makes a total of 8 months of OA interest lost as we would lose interest income for this sum of money in the next month too.

waterwood said...

Hi AK,

May I know when are the CPF-OA funds returned (to the CPFIS) when the 6-month T-bill matures? How many days after maturity date? And many days later are the funds credited to CPF Board (after a Transfer Back to CPF Board is done)?

Is it safe to apply for T-bill using CPF OA if the maturity date is say 22nd of the month? Will it be in time to return to CPF Board before the 1st of the next month?

Many thanks.


AK71 said...

Hi John,

I think the money goes back into the CPF investment account on the day the T-bill matures.

Once we request for the money to be transferred from the IA to the OA, it happens within 2 days.

That was my experience with DBS.

I don't know if it is a good idea to apply for T-bills with auctions happening only a few days before the end of the month because things could go wrong.

So, I rather avoid possible problems.

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