BS26123A 6-Month T-bill: 2% per Annum?

The latest 6-month Singapore Treasury bill (T-bill), BS26123A, is now open for applications. With stock markets experiencing renewed volatility, Singapore bank stocks suffering a sudden correction and uncertainty surrounding the AI investment boom, could this be an opportunity for investors to park their cash and earn a relatively safe return?

More importantly, can we finally see the 6-month T-bill yield return to 2% per annum?

It is certainly something investors would welcome. However, looking at recent auction results, I believe 2% might be an overly optimistic expectation.

Why Investors Are Looking Towards Cash Again

The investment landscape has become considerably less comfortable in recent weeks.

Singapore’s three major banks — DBS, OCBC and UOB — have experienced a sharp pullback following their latest earnings announcements. Their share prices have come under pressure as investors reassess valuations, earnings expectations and the outlook for bank profitability.

The weakness is not confined to Singapore.

Technology and AI-related stocks have also experienced heightened volatility. Nvidia, one of the biggest beneficiaries of the AI investment boom, has become the centre of renewed market uncertainty following the departure of its CEO, Jensen Huang. The developments have added another layer of uncertainty to an already nervous AI investment environment.

Investors are increasingly questioning whether the enormous capital expenditure on AI infrastructure can eventually translate into sustainable earnings and returns.

Interest rate uncertainty is another complication.

Expectations surrounding the Federal Reserve’s next move have become less predictable. Rising US Treasury yields and renewed concerns about inflation have made it more difficult for investors to determine the direction of interest rates.

The result?

Stock market performance has become increasingly unpredictable, and investors who previously enjoyed strong gains from equities are now facing a different environment.

Against this backdrop, holding cash is becoming a more attractive proposition.

Rather than rushing to buy stocks simply because prices have declined, investors may prefer to wait for better opportunities while earning some returns on their idle cash.

This is where the Singapore 6-month T-bill comes into consideration.

Recent 6-Month T-bill Yields: Is 2% Still Possible?

Unfortunately, the recent T-bill auction results have not been particularly encouraging for investors hoping for higher yields.

Consider the recent 6-month T-bill cut-off yields:

The latest auction saw the cut-off yield decline from 1.95% to 1.86%.

This was disappointing, particularly for investors who had been hoping to see yields return to the 2% level.

Interestingly, the latest auction attracted approximately S$20.81 billion in applications against an offered amount of S$8.5 billion. This represented a bid-to-cover ratio of approximately 2.45 times.

In other words, there was substantial demand for the latest T-bill, but that did not translate into a higher yield.

As of 12 November, the indicative secondary-market yield for the 6-month T-bill was around 1.87%.

This gives us an indication of where the market is currently pricing short-term Singapore government securities.

Why 2% Could Be An Overly Optimistic Expectation

There are several reasons why I would be cautious about expecting a 2% cut-off yield for BS26123A.

First, recent auction results suggest that yields have been struggling to move higher.

The previous auction’s 1.86% cut-off yield was already below the 1.95% recorded in October.

For the next auction to achieve 2%, yields would need to recover quite meaningfully.

Second, while global market volatility could encourage investors to seek safer assets, it does not automatically translate into higher T-bill yields.

In fact, stronger demand for Singapore Government Securities could have the opposite effect.

When investors compete for relatively safe government securities, they may be willing to accept lower yields. This pushes up bond prices and reduces the returns available to new investors.

Third, the outlook for interest rates remains uncertain.

Although rising US Treasury yields could influence global bond markets, Singapore’s short-term interest rates are also affected by domestic liquidity conditions and demand for Singapore-dollar assets.

We should therefore avoid assuming that higher US yields will automatically translate into higher Singapore T-bill yields.

Taking these factors together, I believe a yield below 2% is a more realistic expectation for BS26123A, although market conditions could change before the auction.

BS26123A: What Investors Should Know

Here are the important details of the latest 6-month T-bill:

The auction will determine the actual cut-off yield.

Investors can apply through DBS/POSB, OCBC and UOB using their respective banking platforms.

My Take: Is It Time To Park More Cash?

Personally, I think the latest market developments provide a reasonable argument for maintaining a larger cash allocation.

This is not necessarily because stocks are no longer attractive. In fact, a meaningful correction in Singapore bank stocks and other quality companies could eventually create interesting investment opportunities.

However, there is also no urgency to deploy all available cash into the stock market.

The 6-month T-bill offers investors an opportunity to earn a relatively predictable return while preserving capital, provided they hold it to maturity.

At a yield of around 1.86% to 1.90%, the returns might not be particularly exciting. But there is something to be said about earning a return while waiting for better investment opportunities.

Of course, investors should also consider the opportunity cost. If interest rates rise further, locking money away for six months could mean missing out on potentially higher returns elsewhere.

Nevertheless, in an environment where equity valuations, AI investment returns and interest rate expectations are all being reassessed, having some liquidity is not necessarily a bad thing.

My expectation for BS26123A? I would not get my hopes up for 2% per annum. A yield closer to the recent 1.86% to 1.95% range appears more realistic.

Ultimately, the objective is not to chase the highest possible T-bill yield. It is to ensure that our money continues working for us while we wait for the next attractive investment opportunity.