T-bills are short-term government bonds that allow you to park your money safely. But are they good investments? Webull Singapore | Tiger Brokers | CMC Invest |Webull| moomoo The Singapore Treasury Bill, or T-bill, is one of the most popular fixed-income financial instruments around. Backed by the Singapore government, T-bills are practically risk-free and offer stable returns. They also have a short maturity period of either six months or a year. But just what are T-bills? And how do they differ from other Singapore Government bonds like the Singapore Savings Bond (SSB) and the Singapore Government Securities (SGS) bond? More importantly, are T-bills good investments? SingSaver's Exclusive Offer: Open a CMC Invest account and receive a S$20 cash via PayNow. Plus, fund a minimum of S$1,000 (maintain funds till 31 July) and make 5 buy trades by campaign promo end date to get 1 free share of Alibaba Group Holding Ltd (NASDAQ:BABA) (worth S$101). Valid till 06 August 2024.T&Cs apply. Additionally, receive 6 Grab shares (NASDAQ:GRAB) when you fund S$500 and make 2 ‘buy’ or ‘sell’ trades within the promotional period. Valid till 31 October 2024. T&Cs apply. Table of contents The interest rate for T-bills is determined at the auction. Here are the details of the latest T-bill: Issue code BS24114V Tenor 6 months Cut-off yield 3.64% p.a. Total amount offered S$6.8 billion Total amount applied S$15.7 billion Amount allocated to non-competitive applications S$2.7 billion % of non-competitive applications allocated Approximately 82% % of competitive applications at the cut-off allotted Approximately 83% Bid-to-cover ratio 2.3 Announcement date 11 July 2024 Auction date 18 July 2024 Issue date 23 July 2024 Maturity date 21 Jan 2024 The cut-off yield of the latest 6-month T-bill (BS24114V) has fallen to 3.64% p.a. from the previous 6-month T-bill's (BS24113N) 3.70% p.a. yield. However, demand for the latest T-bill tranche was marginally higher, with S$15.7 billion in applications for the S$6.8 billion on offer, with a bid-to-ratio of 2.3. In comparison, the previous 6-month T-bill S$15.6 billion in applications for the S$6.5 billion on offer, with a bid-to-ratio of 2.4. The latest T-bill also saw approximately 83% of non-competitive applications allocated, amounting to S$2.7 billion, while about 82% of competitive applications at the cut-off yield were allocated. The next 1-year T-bill is now open for applications. Below are the details: Issue code BY24102W Tenor 1 year Cut-off yield TBA Total amount offered S$5.1 billion Total amount applied TBA Amount allocated to non-competitive applications TBA % of non-competitive applications allocated TBA % of competitive applications at the cut-off allotted TBBA Bid-to-cover ratio TBA Announcement date 18 July 2024 Auction date 25 July 2024 Issue date 30 July 2024 Maturity date 29 July 2025 (Note that the application period typically opens a week before the auction date and closes 1 to 2 business days before the auction, but you can check with your bank on the exact closing date) There will also be an upcoming 6-month T-bill on 25 July. You can view the 2024 auctions and issuance calendar onMAS’ website here. T-bills are government bonds that are backed by the Singapore government, which holds a ‘AAA’ credit rating from credit rating agencies (the highest rating possible). In other words, this means that the risk of losing your money is relatively low (note: it’s not risk-free). T-bills are deemed short-term bonds with a short maturity period of either six months or a year. They're also issued every fortnightly or quarterly and are sold in denominations of S$1,000. SingSaver Exclusive Offer: Receive a Xiaomi Robot Vacuum E10 EU (worth S$249) or an Apple HomePods Mini (worth S$140.25) or S$150 vouchers or S$100 cash via PayNow when you open a Tiger Brokers account and fund a minimum amount of USD 1,000. Valid till 6 August 2024. T&Cs apply. Here’s an overview comparison between the SSB, SGS bonds, and T-bills: Bond type SSB SGS bonds T-bills Tenor 10 years 2, 5, 10, 15, 20, 30, or 50 years Six months or a year Minimum investment S$500 (and in subsequent multiples of S$500) S$1,000 (and in subsequent multiples of S$1,000) S$1,000 (and in subsequent multiples of S$1,000) Maximum investment S$200,000 overall Auction: up to the allotment limit for auction No limit, but up to the allotment limit for auctions Investment funds Cash and SRS Cash, SRS, CPF (auction), cash (syndication) Cash, SRS, CPF How often is interest paid Every six months, starting from the month of issue Every six months, starting from the month of issue At maturity Can redeem before maturity? Yes No early redemption. Investors can receive the face (par) value at maturity No early redemption. Investors can receive the face (par) value at maturity Type of interest payment Fixed coupon with a ‘step up’ interest Fixed coupon No coupon; issued and traded at a discount to the face (par) value Secondary market trading No At DBS, OCBC or UOB main branches; on SGX through brokers At DBS, OCBC or UOB main branches Tax exempted? Yes Yes Yes Back to top You can invest in T-bills with cash, funds from your Supplementary Retirement Scheme (SRS) funds, or your CPF savings. Like SGS bonds, there’s no limit to how many T-bills you can hold, but you can bid up to a maximum of S$1M in each auction. To buy T-bills, you’ll need the following: If you’re investing with cash, you can apply through DBS, OCBC, or UOB ATMs or internet banking (under invest>Singapore Government Securities). For SRS applications, you can apply through the internet banking portal of your SRS operator (DBS, OCBC, or UOB). Finally, for CPFIS applications, CPF members can apply online through DBS i-banking portal or POSB digibank online (under invest>Singapore Government Securities). Note there will be a S$2.50 fee (excluding GST) if you use your CPF OA funds. OCBC and UOB members can also apply online under the CPFIS via their respective services. For UOB, go to investment Or, you can do it the old-fashioned way by submitting your applications at any branch of your CPFIS bond dealers (DBS/POSB, OCBC, or UOB). Unlike the SSB and SGS bonds, T-bills don’t pay out interest. Instead, you buy T-bills at a discount to the par (face) value and receive the par value when the bond matures. In other words, the upfront discount is essentially the profit you earn and you'll receive your full principal amount when the T-bill matures. For example, if you were to pay S$5,000 to buy a 6-month T-bill bond with a yield of 3% p.a., you would only need to pay S$4,925 upfront. When the bond matures, you’ll receive the full S$5,000 in return, thus earning you S$75. Another thing to note is the actual interest yield for T-bills is only revealed when the auction results are announced. So unlike the SSB and SGS bonds, where you'll know the exact interest rates you'll be getting before buying, T-bills are auctioned first before the yields are determined. Back to top One caveat of T-bills is you can't redeem your T-bills before they mature. That said, you can sell them to other buyers in the secondary market through the main branches of DBS, OCBC, or UOB. Bank Contact Branch address DBS 1800-111 1111 12 Marina Boulevard Level 3 UOB 1800-222 2121 80 Raffles Place OCBC 1800-363 3333 65 Chulia Street The drawback of selling in the secondary market is that price swings influence bond prices in the market. In other words, the price that you sell your T-bills might be lower than what you had paid. Aside from market conditions, another downside to selling your T-bills is a lack of interested buyers. Hence, it’s generally advisable to hold your T-bills until maturity. Like SGS bonds, T-bills are issued via auctions in competitive and non-competitive bids. A competitive bid is where you buy T-bills at your desired yield based on the price you're willing to pay. Every competitive bid exercise asks you to state the lowest yield you're willing to accept. The lower the yield, the more competitive it is. Opt for a competitive bid if you want your funds to be invested only if the cut-off yield is above your specified yield, up to 2 decimal places. A competitive bid is usually for savvy investors. Note that you will only get the full amount if your bid is lower than the cut-off yield. If your bid equals the cut-off yield, your return might be lower as the allocation is pro-rated. That said, you're allowed to submit multiple competitive bids, so one strategy is to submit several bids with different amounts to ensure that some of your bids are allocated. On the other hand, a non-competitive bid is where you specify the amount you want to buy and are willing to accept the discount rate at the auction. This is the best option for most retail investors. If you want to invest in the bond regardless of the return or are unsure of what yield to bid, go for a non-competitive bid. This method also guarantees you receive the full amount of the T-bill when it matures. Remember that non-competitive bids will be allocated first, up to 40% of the total issuance amount. However, if non-competitive bids exceed 40%, the bond will be allocated pro-rated. The remaining amount will be given to competitive bids from the lowest to highest yields. The maximum allotment for non-competitive bids is S$1 million per T-bills auction, which means you can't apply for more than S$1 million in an auction. For instance, if you apply for S$500,000 on the first day and S$600,000 on the second day, you would need to reduce the amount to S$500,000 to apply again. You may refer to the auction days based on the MAS’ auctions and issuance calendar. SingSaver Exclusive Offer: Receive a S$150 Shopee Voucher when you open a Webull account and fund a min. initial of USD2,000. Fund USD10,000 to get a S$300 Shoppe Voucher or a Sony WH-1000XM4 (worth S$509) or a Dyson TP10 (worth S$599). Plus, be one of the first 60 applicants to receive an additional S$100 Shoppe Voucher when you fund a min. of USD10,000. Stackable with Webull Welcome Offer. Valid till 31 August 2024.T&Cs apply. Webull Welcome Offer: Enjoy 0 commission US options trading plus get up to 7% USD moneybull interest up to 90 days with return up to USD1750. Additionally, get up to USD400 cash vouchers, and up to USD1,500 Trading vouchers when you complete additional requirements. Valid 30 September 2024. T&Cs apply. Back to top You’ll be issued T-bills three business days after the results are revealed. If you applied with cash, you can check your CDP statement. If you applied with your SRS funds, you can check the statements from your SRS operator (DBS/POSB, OCBC, and UOB). If you applied with your CPFIS-OA, you can check your CPFIS statement from your agent bank (DBS/POSB, OCBC, and UOB). For CPFIS-SA, you can check your CPF statement. When your T-bills mature, the proceeds will be credited to your Direct Crediting Service (DCS) bank account. This may not be the same bank account that you used to apply for the T-bill, but you can check your CDP account to see which bank account is registered as your DCS account. If you applied with your CPF money, the funds will be credited to your CPFIA or CPF-SA. Back to top With the latest interest yields of T-bills surpassing the CPF OA's basic 2.5% interest rate per year and around the CPF SA's and RA's 4% interest rate, you may be wondering whether it's a good idea to use your CPF monies to invest in T-bills. Before deciding to invest with your CPF savings, here are some factors to consider beforehand: Liquidity If you foresee yourself using your CPF monies in the near future — be it for buying a property or if you need to withdraw your CPF RA savings (if you’re 55 and above) — within the next six to 12 months, then it’s better to leave your savings in your CPF account than to invest it. Remember that you can't redeem your T-bills before maturity and would need to sell them in the secondary market if you want to redeem them before maturity. However, as mentioned, bond prices fluctuate based on the interest rate environment and market conditions, so you might not be able to get back your principal amount. Additionally, there must also be an interested buyer who's willing to match your price. As such, consider your time horizon before investing in T-bills. Opportunity cost and fees When using your CPF monies to invest in T-bills, there are also opportunity costs to consider, particularlythe risk of losing out on the CPF interest. If you didn't already know, CPF interest is computed monthly and compounded annually based on the lowest balance of that month. For example, CPF contributions received this month will only start earning interest next month. You also won't earn any interest from this month onwards if you withdraw this month. In other words, this means that you won't earn interest in the months that you use your CPF-OA funds to apply for T-bills until the month after you receive the money back from T-bills into your account. For example, say that you invested S$10,000 of your CPF OA savings in a 6-month T-bill with a cut-off yield of 4%. The amount of interest you'll be forgoing in your CPF OA for seven months is: S$10,000*2.5%/12*7 = S$145.80 On the other hand, the yield that you'll receive from the T-bill is S$10,000*4% = S$200. While the investment returns you get from T-bills are slightly higher, remember that you will be charged a fee for purchasing T-bills, so you need to factor that in too. When investing with your CPF, you'll incur a one-time transaction fee of S$2.50 + GSTand a quarterly charge of S$2 per issue. Hence, investing in a 6-month T-bill will incur a total fee of S$6.50. So, if you include the fees, the net yield you'll receive is S$200 - S$6.50 = S$193.50. Therefore, the excess interest earned from T-bills is S$193.50 - S$145.80 = S$47.70. While money is money, it's debatable whether gaining S$47.70 is worth using your CPF savings for. Don't forget that you must apply in person at a bank if you invest via CPFIS. Therefore, you'll also need to spend time queuing up, visiting the bank, finding a parking spot, etc. Losing out on additional interest from CPF Remember that the government will pay you a bonus interest of 1-2% based on your CPF savings and age. Those below 55 years old can earn an additional 1% p.a. on the first S$60,000 of their combined CPF balances (capped at S$20,000 of CPF OA). This means that you can earn up to 3.5% p.a. on your CPF OA savings and up to 5% p.a. on your CPF SA and MediSave. Meanwhile, those 55 years old and above can earn an additional 2% on the first S$30,000 of their combined balances. Again, this is capped at S$20,000 for CPF OA. You'll also earn an extra 1% on the next S$30,000, meaning that you can earn up to 6% p.a. on your CPF retirement funds. As such, the additional interest given by CPF is still quite attractive, so before using your CPF-OA funds to invest, consider your risk appetite and time horizon. T-bills can be good investments if you want to invest in the short term and park your money in a safe place as their backed by the Singapore government. You’ll also be guaranteed a fixed interest payment when the bond matures and you can start investing with a small capital of S$1,000. Furthermore, there's also no capital gains tax. That said, while the yield for T-bills is attractive, it's only slightly above the core inflation rate in Singapore, which is currently 5% as of October 2023. T-bills also offer around the same interest rates as fixed deposits and savings accounts, though it's not near their maximum rates. Another drawback of T-bills is that they aren’t as liquid as the SSB, as you’ll need to sell your bonds in the secondary market if you want to redeem them early. This could also result in losses as bond prices fluctuate according to market conditions. If you're willing to lock up your money in something for longer, consider investing in the SSB or SGS bonds. But, if you want a short-term investment that offers competitive returns, T-bills might just be the right investment for you. SingSaver Exclusive Promo: Receive S$50 vouchers when you open a moomoo account and fund a minimum of S$100. Plus, get an additional S$150 vouchers when you fund S$2000. Valid till 6 August 2024. T&Cs apply. Plus, receive up to S$1,014 worth of welcome rewards and up to 6.8% p.a. returns when you complete additional actions with your moomoo account. Valid till 31 October 2024. T&Cs apply. Read these next:Best Investment Platforms of 2024
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Syndication: noneHow do I buy T-bills in Singapore?
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T-bills interest yields
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