SINGAPORE – There is plenty of uncertainty around interest rates at the moment, but the yields on Singapore Treasury Bills (T-bills) are still holding up pretty well.

The auction of one-year T-bills on April 18 produced a cut-off yield of 3.58 per cent, after falling to 3.45 per cent in the previous auction on January 25.

The cut-off yield on six-month T-bills dipped from 3.8 per cent to 3.75 per cent at the April 11 auction.

Market watchers expect T-bill yields to hover around 3.5 per cent to 3.8 per cent, given that the United States Federal Reserve signalled on April 16 that it will wait longer than previously anticipated to cut rates.

Yields above 3.5 per cent make T-bills a good option for investors to park their money while weighing other investment alternatives.

Remarks from US Fed chairman Jerome Powell on April 16 reflect a shift from December, when he had indicated that the rates were to be eased.

The change comes as the US economy continues to add jobs while retail sales remain strong and inflation shows few signs of slowing.

Mr Wong Di Ming, research analyst in the bond research team at Bondsupermart, said tensions in the Middle East have pushed up oil prices, which have helped keep inflation high.

“Energy prices are a key component of inflation, so potential upside risks to inflation remain present,” he added.

The markets have already adjusted and are now pricing in two to three interest rate cuts in 2024, from the six cuts expected earlier in the year, Mr Wong said.

Yields on Singapore T-bills have also been supported by demand as investors switch out of fixed deposits, which have rates below 3 per cent, added Mr Winson Phoon, head of fixed income research at Maybank Kim Eng Securities.

Mr Phoon expects yields on six-month T-bills to stay at around 3.65 per cent to 3.85 per cent, while one-year T-bills will be around 3.5 per cent.

Mr Wong from Bondsupermart is sticking to his forecast for the yields of six-month T-bills to range between 3.7 per cent and 3.9 per cent in 2024.

He noted that one-year T-bills are slower to reflect changes in interest rate expectations as the auction occurs only every three months, compared with once a fortnight for six-month T-bills.

The six-month T-bill is off the peak of 4.4 per cent it hit in December 2022, while the one-year T-bill is down from the 3.87 per cent high it reached in January 2023.

T-bills continue to offer returns for investors who have spare cash or who are looking to park the funds in their Central Provident Fund (CPF) Ordinary Account (OA).

The Straits Times’ calculations of T-bill statistics from the Monetary Authority of Singapore website indicate that $33.1 billion worth of six-month T-bills matured between January and March 2024, while $3.6 billion of one-year T-bills matured.

The CPF Board told ST that “over $4.8 billion of CPF OA funds were invested in T-bills” between January and March 2024.

In the same period, “over 33,000 T-bills bought using CPF OA savings have matured or were redeemed, amounting to over $3.4 billion refunded to the CPF OA or CPF Investment Account (CPFIA)”.

A CPF member needs a CPFIA to invest OA savings.

ST calculated that $39.6 billion of six-month T-bills and $4.3 billion of one-year T-bills will mature between April and June 2024.

Investors will have to decide where to put this cash and OA funds that have matured or will be maturing.

Mr Sani Hamid, director of wealth management at Financial Alliance, said the decision depends on each individual’s risk appetite.

T-bills are considered risk-free so it makes sense for a risk-averse investor to roll his funds into more T-bills, Mr Sani added.

However, if the person used T-bills as a “temporary shelter away from market volatility”, Mr Sani said it may be a good time to start investing in the markets, which are undergoing a correction now.

A market correction is generally defined as a decline of more than 10 per cent but less than 20 per cent. 

Investors should look at reinvestment risk when it comes to choosing between six-month and one-year T-bills.

Mr Eddy Loh, chief investment officer at Maybank Group Wealth Management, noted that reinvestment risk is higher in this environment where interest rates have peaked and are expected to head lower.

Mr Loh said an investor might want to lock in a longer tenure because if he opts for six-month T-bills and yields drop after six months, he ends up reinvesting in a lower-yielding T-bill for the next six months.

Singapore Savings Bonds (SSBs), another type of Singapore Government Securities, are also an option for spare cash. The May tranche of SSBs is giving an average return of 3.06 per cent a year if an investor holds it for 10 years.

CPF funds cannot be used to buy SSBs. 

CPF members can make transfers from their OA to their Special Account (SA) or Retirement Account (RA) to earn at least a 4 per cent risk-free interest rate.

The rates can go up to 5 per cent for the first $60,000 of combined balances in the OA and SA (capped at $20,000 for OA funds) for CPF members below 55.

Rates for members over 55 can go up to 6 per cent on the first $30,000 of combined balances and up to 5 per cent on the next $30,000 of combined balances (capped at $20,000 for OA funds).