Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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"You have a CPFIS investment deduction from your Ordinary Account."
I suppose this means that my competitive bid (using CPF-OA money) for the last 6 months T-bill auction that took place on 14 September was successful.
A quick check revealed that the cut-off yield was 3.73% p.a. and this is still relatively attractive.
This is relatively attractive when our local banks are offering much lower interest rates for 6 months fixed deposits.
Definitely, it is more attractive than the 2.5% p.a. offered by CPF-OA even when accounting for a loss of 7 months worth of interest income which would have been paid by CPF.
Why 7 months?
This is due to how CPF calculates and pays interest on our CPF savings, taking only the month-end balance into consideration.
So, all three of my applications using cash on hand, SRS and CPF-OA money were successful.
I find it strange that there seems to be less interest in 6 months T-bill now.
It seems to be weaker compared to a year ago, for example.
I remember non-competitive bids being so plentiful that my offer to buy was only partially filled at times.
Could it be that more people are buying the common stocks of DBS, OCBC and UOB instead, given the higher level of public awareness of how attractive their dividends are?
After all, a 6% dividend yield beats 3.73% p.a. return hands down.
Could AK be doing something wrong?
OMG!
I can feel an anxiety attack coming.
Time to go sink some enemy warships to calm myself down.
Related post: Must buy T-bill? (How to transfer from CPF-IA to CPF-OA?)
In my last blog post, I made a passing mention about a 6 month T-bill which I bought using money in my CPF-OA maturing in the same week.
I made a request to transfer the money back to my CPF-OA when I saw the funds sitting in my CPF-IA a day later.
It was all rather easy with DBS online banking.
I simply logged in and went to the "Invest" tab and selected "More investment services."
Then, I chose "Refund to CPF Board."
Clicked on "Refund Full Amount", and it was basically done after clicking "Next" and "Submit."
Today, I checked my CPF account and found that the funds are back in my CPF-OA.
Now, I am wondering whether I should buy another 6 months T-bill with the money.
To be quite honest, I am not as enthusiastic as before because the cut-off yield has reduced so much since the start of the year for 6 months T-bills.
In January, it was as high as 4.2% p.a.
The T-bill that matured last week had a cut-off yield of 3.93% p.a.
I am hazarding a guess that the cut-off yield for this week's auction is probably going to be around 3.7% p.a. or similar to what we got in the last auction.
For a sum of $50,000, we are looking at an additional interest income of less than $200 compared to what the CPF-OA would pay for a 7 months period.
Nothing to write home about.
Anyway, with CPF-OA money, I will not go the path of non-competitive bids just in case the unthinkable happens.
I will put in a competitive bid of 3.5% p.a. because I don't think I am interested in anything lower than that.
If the cut-off yield should come in at 3.5% p.a., the difference in interest income is going to be less than $120.
The cut-off yields for 6 months T-bills are declining but the CPF-OA still pays 2.5% p.a.
So, the difference is shrinking and it is really not a big deal.
There is quite a bit of talk in social media that we should all use our CPF-OA money to buy T-bills.
To be honest, unless the sum of money is relatively large, it isn't anything to worry about.
If we do not have a large amount of money sitting in our CPF-OA, we really are not missing out on any meaningful passive income.
I think some people would say don't sweat the small stuff.
I have been doing yearly voluntary contributions (VC) to my CPF account even though I retired from work 8 years ago.
I simply took some of the passive income I got from my investments and maxed out the yearly VC.
However, I did not do VC this year and I won't be doing VC next year either although the original plan was to do this until I hit 55 years of age.
Why?
I treat the CPF as the risk free and volatility free investment grade bond component of my portfolio.
So, I don't use it to invest in equities or to buy properties, for that matter.
This is my ultimate safety net for if everything else goes horribly wrong.
However, I did use the CPF OA funds to buy T-bills as they belong to the same basket of investments.
Risk free and volatility free.
So, I bought T-bills which paid more than the 2.5% p.a. paid by CPF OA in the last one year or so.
In fact, I have a T-bill bought with CPF OA funds maturing this week.
Must remember to transfer the money from CPF IA back into the CPF OA.
The Singapore Savings Bond (SSB) is another risk free and volatility free investment available to me.
In an earlier blog, I said that if the SSB is able to offer a higher than 3% p.a. coupon, I would buy SSB instead of doing VC to my CPF account.
This is because the average yield for VC I do is about 3% per annum.
Take note that this is for my age bracket and also the fact that my MA has already hit the Basic Healthcare Sum which means my VC goes only to my OA and SA.
I have already bought SSBs using funds which would otherwise have been used to do VC to my CPF account this year and in the next year.
That means no VC to my CPF account in my 52nd and 53rd year on planet Earth.
Now, with the latest SSB offering a 3.16% p.a 10 year average yield, I am thinking of "borrowing" money to buy some.
Borrowing?
Has AK gone to the dark side?
Well, if I were to buy this SSB, I would be using funds which would otherwise have been used to do VC to my CPF account in 2025!
That is 2 years away!
That would be the year I turn 54 years old.
As I have locked up quite a bit of cash in 8 months fixed deposits back in January when OCBC was offering 4.08% p.a. interest, I will have the funds to do this.
Some might think that continuing to do VC to my CPF account is a better idea as I could use the CPF OA funds to buy T-bills in the meantime.
Well, if interest rates are really going down sometime in 2024 or 2025, reinvestment risk is very real for short term fixed income instruments like T-bills and fixed deposits.
So, locking in a higher 10 year average yield now doesn't seem like a horrible idea.
Buying $38,000 of SSBs yearly might seem excessive to some but, for me, it really is just moving money meant for my CPF account.
It is something in my yearly budget.
What might be considered "excessive" is "borrowing" funds from next year which would have been earmarked for CPF VC in 2025 to buy the SSB now.
The next 6 months T-bill's auction is happening this Thursday.
So, if we are building or maintaining a T-bill ladder, don't forget to put in a bid.
I will be putting in a non-competitive bid again.
No reason to agonize over how much to bid for in a competitive bid when chances are any cut-off yield is likely to be higher than offers from the banks for a 6 months fixed deposit for now.
I just produced a video on a 3.6% per annum offer for a fixed deposit but that is for a 9 months tenure.
This is the link to the video for readers who do not follow me on YouTube:
IREIT Global reported lower net property income for 1H2023.
I remind myself that if the current weakness is temporary in nature, then, staying invested is what I want to do.
Portfolio occupancy has improved from 87% to 88.7% as 25% of the vacated Darmstadt asset was taken up by the German government.
However, together with the rent free periods for newly signed leases in Bonn Campus, Munster Campus and Sant Cugat Green, contribution to property income will only be visible in 2H2023.
There is also the fact that the REIT has more units in issue after the recent rights issue while the funds raised have yet to be utilized.
The acquisition of out of town retail parks leased to B&M will make a meaningful contribution to property income when it is completed.
All these point to a higher level of distributable income in 2H2023.
Staying invested in IREIT Global for income also gives me peace of mind unlike being invested in some other REITs like Elite Commercial Trust, Manulife US REIT and Prime REIT because of its very strong balance sheet.
Gearing level will be at around 34% post acquisition of the B&M portfolio.
Even if the value of properties in their portfolio should see a decline of 10%, gearing level would not exceed 40% unlike some of the other REITs mentioned above.
IREIT Global also has almost 100% of its debt on fixed interest rate which is at around 1.9% p.a. and they do not need refinancing until 2026.
I particularly like their Berlin asset which recently saw an extension of its master lease till end of 2024 at a significantly higher asking rent.
This confirms reports that that the said asset is under rented.
Although there could be a vacancy period if the master lease is not extended beyond 2024, I expect that it would be more quickly backfilled than the Darmstadt asset.
IREIT Global seems to be suffering collateral damage as well due to Mr. Market's pessimism about some overseas REITs.
However, when I look at the details, IREIT Global is in a stronger position.
I keep saying to myself that during tough times, having a strong balance sheet will ensure survival.
This could be lost on Mr. Market.
So, opportunities to buy IREIT Global even cheaper could present themselves.
This brings me to the next point of this blog post, T-bills.
Regular readers know that I have a T-bill ladder which was completed in April this year.
I have not only been maintaining the ladder but I have also been strengthening it whenever I could.
I would add a thousand dollars or two to my application in every T-bill auction.
Only an extra thousand dollars or two?
Yes, AK is a retiree without a lot of spare cash. Sadness.
I also talked about when I might dismantle my T-bill ladder.
Well, if Mr. Market should become even more irrational than usual, I might just have to dismantle my T-bill ladder to buy more of IREIT Global.
The next T-bill auction is happening on 17 August which is just next week.
I will be putting in a non-competitive bid using money from a T-bill which matured plus some spare cash on hand, as usual.
No need to think hard about how much to bid competitively unless I am using CPF-OA money.
1. Singapore Savings Bond is offering a 10 year average yield of above 3% p.a. again.
Like I said in the past, this means it makes more sense for me to buy Singapore Savings Bond than to make voluntary contribution to my CPF account.
This is because the average interest rate I get from CPF for my age group is about 3% p.a.
This takes in the allocation to OA and SA as prescribed by the CPF.
Nothing into the MA as my MA has hit the prevailing Basic Healthcare Sum.
However, since I have already used all my funds meant for CPF voluntary contribution in 2023 and also 2024, I would be tapping in 2025's funds if I were to buy this Singapore Savings Bond.
This is not a bad idea since bond yields could fall later in 2024.
Well, problem is my war chest is complaining after my recent large withdrawal for IREIT's rights issue.
A hungry war chest is an angry war chest.
Must replenish war chest first.
2. The recent 6 months T-bill auction saw a cut-off yield of 3.75% p.a.
Not fantastic but not too shabby either when compared to what a 6 months fixed deposit offers.
Happy that my non-competitive bid was fully filled.
Looking forward to the next auction happening on 17 August.
I would probably be increasing the application quantum for that auction too as I continue to strengthen my T-bill ladder.
I will do this by using some of the dividends received from AIMS APAC REIT, adding to funds returning from a maturing T-bill.
3. OCBC announced results!
Dividend per share of 40 cents declared!
This is much higher than last year's 28 cents!
As my investment in OCBC is much larger than my investment in either UOB or DBS, this is going to have a huge impact on my passive income for 2023.
Still feeling giddy from my recent blogs on UOB and DBS.
Now, I feel even more giddy.
So, I shan't say anything else about OCBC.
I give you a picture instead.
Click to enlarge.
I remind myself that OCBC is only paying out half of its earnings as dividends.
This means that the common stock of OCBC is growing more valuable over time.
Congratulations to all fellow shareholders!
Financial freedom is not a dream for most of us in Singapore, and investing for income can only help.
Anyway, now that the serious stuff is out of the way, let's look at other stuff.
In my last blog, I talked to myself about the bumper interim dividend from UOB.
Up by 40%, it made me giddy with joy!
I expect OCBC and DBS to pay higher dividends too.
This means they should at least match their dividends in the last quarter.
If nothing goes wrong, my passive income for Q3 2023 should be somewhat higher than for Q3 2022.
If this pans out, it would be quite a feat since 2Q 2022 passive income generated by my investment portfolio increased by an impressive 42% compared to 2Q 2021 (mostly because the banks were still paying lower dividends in 2Q 2021.)
Whether passive income in Q3 2023 would be higher than Q2 2023 is less certain and, for that, I would wait and see.
On to another happy discovery.
When I checked my bank account, I found a few thousand dollars deposited by my old friend, AIMS APAC REIT (AA REIT.)
With my war chest largely depleted by IREIT Global's rights issue, getting some free money from AA REIT makes me love the REIT more.
As there will be quite a bit more dividend to be received from UOB and probably OCBC and DBS too next month, I decided to increase the quantum in my application for the upcoming 6 months T-bill with some of the money.
It is now open for application and the auction is happening on 3 August.
I will be going for non-competitive bid, as usual.
There is no need to agonize over a competitive bid since whatever the cut-off yield might be, it would most likely be higher than whatever interest rate the banks are offering for a 6 months fixed deposit.
So, the exercise to strengthen the fixed income component of my investment portfolio continues.
It gives my portfolio greater stability.
It gives me greater peace of mind to know that if I need more money, I have a T-bill ladder I can rely on.
This means I would not have to sell my stocks at prices not of my own choosing if some things should go terribly wrong in life.
Being forced to do something, not having control over our lives is not a good feeling.
With the yield curve still inverted, 6 months T-bills are going to remain rewarding.
So, they help to keep me sane and happy at the same time.
As for the latest 6 months T-bill auction results, not too bad.
The cut-off yield is 3.85% per annum.
Still don't understand why some people are bidding below 2% per annum which we can gather from an average yield of 2.88% per annum in the auction results.
I stop face palming liao.
Give up.
My non-competitive bid was 100% filled, fortunately.
Waiting for the next 6 months T-bill as I keep my T-bill ladder intact.
I don't think my application for excess rights would be fully filled.
So, I am waiting for some money to be refunded.
I have also received some money from a 6 months T-bill which has matured.
The next 6 months T-bill will see its auction happening on 20 July or next Thursday.
Instead of simply recycling money from the matured T-bill, I plan to increase the quantum by using some of the money I expect to be refunded from my application for excess rights.
Judging by the increased interest in non-competitive bidding in the last 6 months T-bill auction, it is possible that my non-competitive bids would only be partially filled in future auctions.
So, given this consideration, increasing the application quantum in future makes sense too.
With interest rates offered by the banks for 6 months fixed deposits having declined pretty significantly, it is only natural that interest in 6 months T-bills should pick up.
Adding exposure to 6 months T-bills while the front end of the yield curve remains elevated will generate relatively attractive passive income for me safely.
It would also help to strengthen the fixed income component of my portfolio which is something I have been doing for quite a while now.
The money in my T-bill ladder can also be deployed in the next significant stock market correction which might happen if the much talked about economic recession takes place.
I have been busy gaming in the last few days as Neverwinter celebrates its 10th birthday.
Time really flies and I have been adventuring in virtual worlds for 8 years.
Of course, I have been retired from gainful employment for just as long.
I remember saying that CPF is a pie we would all get to eat one day if we did the right things.
Well, in another 3 years, I would get to eat the pie.
It is both a happy and depressing thought.
Anyway, like I shared in my last blog, I ignored AA REIT's rights issue.
It meant accepting an 11% reduction in income from the REIT in future.
I am staying invested in AA REIT but as a retiree without plenty of excess funds, I am less willing to deploy money into any venture that does not add to my income in the very near future.
Even if I were to take up my rights entitlement, unless I am willing to apply for a lot more in excess rights, I would still suffer some income reduction from the REIT.
Much better to put the money in T-bills in my case.
This provides a nice segue into the next topic.
My non-competitive bid for the recent 6 months T-bill was 100% filled.
3.89% p.a. huat ah!
Could have been higher but it is obvious that many kiasu people were placing very low bids of possibly under 2% p.a. in order to secure their T-bills.
Proof is in the pudding with average yield at a paltry 3.07% p.a.
I saw that and it was a face palm "Alamak AK!" moment.
I have no words.
Speechless.
OK, I stop.
Another "Alamak AK!" moment was DBS and OCBC being fined $2.6 million and $600,000 respectively by the Monetary Authority of Singapore.
It is a ton of money to AK but it is probably like being stung by a mosquito for the banks.
I am staying invested in DBS and OCBC, of course.
Still looking to add to my investment in OCBC and UOB at supports.
Hint: OCBC tested immediate support which has risen to $12.30 a share just now.
Longer term support for OCBC is still around $12 a share.
I would add to my investment in DBS too but its stock price would have to decline much more for it to be attractive to me.
Nothing to see here, move on.
I am gathering my funds to take part in IREIT Global's rights issue now.
Must pay by 11 July.
If I am successful in getting all the excess rights I aim to get as well, IREIT Global could become an investment as big as my investment in OCBC.
Yes, I am emptying my war chest for this.
This is an exciting thought but also a scary one.
I might have to do some rebalancing of my portfolio later on.
For now, I just like the idea of increasing my income from IREIT Global by at least 16%.
This is the transcript of a YouTube video I produced recently.
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Q2 and Q3 are usually good quarters for me in terms of passive income.
After setting aside money for personal expenses, parental support and gifts, the plan was to use some of the money to increase exposure to T-bills.
I still find 6 months T-bills to be quite attractive.
Of course, regular readers would understand why.
I have always had a soft spot for risk free and volatility free CPF which pays between 2.5% to 4% per annum.
Oops.
My apologies, it should be 2.5% to 4.01% per annum.
So, with similar characteristics, it is no surprise that I am attracted to T-bills these days like a bee is to honey.
The latest 6 months T-bill auction saw a cut-off yield of 3.84% per annum.
I said in an earlier blog that I would be happy if cut-off yield remained the same at 3.85% per annum.
3.84% per annum is enough to make me quite happy.
Anyway, like I said, I had planned to use some incoming passive income to increase exposure to T-bills.
That plan has to be put on hold now.
I would have to be contented with simply recycling money from maturing T-bills into new ones.
This is because of two rights issues which are coming up.
AIMS APAC REIT and IREIT Global are two of my largest investments.
So, together, I would have to put aside a relatively large amount of money for the rights issues.
For AIMS APAC REIT, we are likely to see a slight near-term reduction in DPU.
This is because part of the plan is to use the funds for asset enhancements and possible redevelopment of existing assets.
Nothing immediately income generative.
With more units in issue, including those issued for the private placement, existing shareholders could see roughly a 6% decrease in DPU if we subscribed only to our rights entitlement.
We can apply for excess rights which would increase the income we receive from the REIT if we are successful, of course.
However, as my resources are pretty limited, I am alright with receiving a bit less income from AIMS APAC REIT post rights issue for a while.
For me, this is not a terrible outcome as I have said many times before that my investment in AIMS APAC REIT has been free of cost for some time.
All income distributions from the REIT are really free money for me.
So, I will subscribe to my rights entitlement and just enough excess rights so that I do not end up with odd lots.
As for IREIT Global, they do not have any private placement in their fund-raising exercise.
So, there is no risk of DPU dilution if we do not apply for excess rights.
They are raising funds using a combination of debt and rights issue.
I also like that the funds they are raising will be used to purchase income generating assets right away.
This is why I said that IREIT Global is really inviting existing shareholders to invest in more properties.
The sponsors will be doing this alongside shareholders as they hold about 50% of the units in issue.
Therefore, I find their rights issue to be more interesting than the one by AIMS APAC REIT.
I also like that at 45 cents a unit, we would be getting a distribution yield of around 8% which is pretty attractive.
Of course, this is not without risk and volatility, unlike T-bills.
However, for me to forgo increasing exposure to T-bills for this rights issue is not a tragedy.
Remember, I am just talking to myself here.
It should be quite obvious to anyone that this is a plan that seems fine for me but it might not be suitable for others.
As for the Singapore Savings Bond offered this month, the 10 year average yield is 2.82% p.a.
This is just a very little bit higher than the 2.81% p.a. offered last month.
Fortunately for me, where Singapore Savings Bond is concerned, my mission for the year is complete.
So, is this something I am looking at just for fun?
Well, partly for fun.
I am also interested in monitoring this for a practical reason.
If the 10 year average yield should go above 3% p.a. again, I could bring forward the plan to inject funds into my CPF account in 2025.
After all, the funds I have used to purchase Singapore Savings Bonds this year were earmarked for CPF voluntary contributions in 2024.
Unless interest rates for CPF OA and SA increase meaningfully, it still makes more sense for me buy Singapore Savings Bonds as long as their 10 year average yield is higher than 3% p.a.
Oh, I produced a YouTube video recently.
Please watch only if you want some comic relief and have a good sense of humor.
You have been warned.
Just talking (and giggling) to myself, of course.
T-bills are still offering more attractive yields than the CPF ordinary account.
This is because the front end of the yield curve is still elevated.
An inverted yield curve has historically been a pretty reliable indicator of a coming economic recession.
This is another reason for having a meaningful exposure to fixed income.
If a recession should hit, the equity market would likely see drawdowns.
Then, I could dismantle my T-bill ladder to increase my exposure to equities.
For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of the video I produced yesterday.
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Not too long ago, I said that a cut-off yield of 3.78% per annum for 6 months T-bill was decent enough.
I was quite happy that the cut-off yield was still much higher than what DBS, OCBC and UOB offered for 6 months fixed deposit at the time.
I still feel the same way now.
Of course, if we are using CPF funds to buy T-bills, the sensible thing to do would be to benchmark the cut-off yield against interest rate offered by OCBC for fixed deposits placed using CPF OA money.
With a promotional rate of 3.3% per annum offered by OCBC for such fixed deposit placements, it boggled my mind that there were people placing competitive bids lower than that.
With T-bills yielding much more in the USA, it is strange that T-bills in Singapore should have much lower yields.
This suggests to me that Mr. Market feels that the Singapore Dollar is stronger and safer than the US Dollar.
It is just an impression as I don't know enough to tell if this is true, especially when it seems counter intuitive.
Anyway, with the debt ceiling issue in the USA, T-bill yields have been going higher recently.
In Singapore, I also noticed this.
In case you are wondering, I visit Monetary Authority of Singapore's website to look at the Treasury Bill Original Maturity table regularly.
This gives me a feel of where T-bill yields are going in Singapore.
A higher proportion of fixed income will help to reduce portfolio risk and volatility.
Constructing a T-bill ladder to create another source of passive income is also viable with interest rates being much higher.
We will see T-bills maturing every 2 weeks or so and receive some income when we recycle the returned capital into new T-bills.
If you are interested to look at the Treasury Bill Original Maturity table, see link to the website and table I have provided below.
Of course, I remind myself that the yields we see in the table are only suggestive because it assumes that participants will be rational in upcoming auctions.
With more retail participation, and with quite a few bloggers recommending their readers to place competitive bids way below average in order to secure their T-bills, the cut-off yields for future T-bill auctions could still surprise on the downside.
This is especially for T-bill auctions happening in the first half of any calendar month.
This is because we are likely to see lower participation from retail investors using their CPF OA money for auctions taking place towards the end of any month.
They run the risk of losing 2 months' worth of CPF OA interest instead of 1 month for auctions happening towards the end of a month.
I might complain about low balls, but I have to accept this uniquely Singaporean reality if I want T-bills to be a part of my portfolio.
Anyway, I am mostly recycling money from maturing T-bills into new T-bills as my T-bill ladder is complete.
The front end of the yield curve is likely to stay elevated for some time.
So, I continue to expect 6 months T-bills to remain relatively rewarding in the near future, especially when taking into consideration that it is risk free and volatility free just like the CPF.
I am quite pleased with today's T-bill auction's cut-off yield of 3.85% per annum.
I know that some people look down on T-bills or anything that provides a return that is lower than the inflation rate.
If these people are very rich and have a lot of spare cash sloshing around, they can look down on T-bills, if they like.
The very rich can afford many things and snobbery is one of these.
However, for most of us, accumulating a meaningful amount of cash and cash equivalents is more a need than a want.
Warren Buffett said unless we are very rich, don't go around spouting nonsense like "cash is trash".
People who look down on T-bills and the returns should remember that T-bills are volatility free and offer risk free returns.
We should not compare them with potential returns from investing in stocks, for example.
I still say that before we start investing, we should learn to be better savers.
I am glad to save for passive income even as I invest for passive income.
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