INTEREST in Singapore’s Treasury bills (T-bills) surged over the past two years, as rising interest rates elevated demand for yield and stable returns.
T-bills also found favour as investors sought the safety of the government-backed, fixed-income instrument – which carry little to no default risk – amid heightened global macroeconomic uncertainty.
But with yields gradually falling after the US Federal Reserve in September 2024 cut interest rates for the first time in more than four years, demand has been dwindling.
The cut-off yield on Singapore’s latest six-month T-bill was 3.04 per cent, based on auction results released by the Monetary Authority of Singapore on Jan 28.
Indeed, cut-off yields for six-month T-bills have fallen a long way from the peak of 4.4 per cent in the auction on Dec 8, 2022.
Demand in the latest tranche was also notably lower than that of previous editions.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The auction received a total of S$15.3 billion in applications for the S$7.2 billion on offer, representing a bid-to-cover ratio of 2.13. This means that there was S$2.13 worth of applications for every dollar of T-bills offered.
In comparison, the previous six-month auction that closed on Jan 16 had a bid-to-cover ratio of 2.55.
Meanwhile, the latest one-year T-bills auction, which closed on Jan 23, offered a cut-off yield of 2.95 per cent – down from its peak of 3.87 per cent in the auction on Jan 26, 2023.
The results of the next six-month and one-year T-bill auctions are expected to be announced on Feb 13 and Apr 16, respectively.
The resurgence of US President Donald Trump has thrown the Fed’s plans to cut rates into disarray. But market watchers still largely believe that interest rates will continue to fall this year, albeit more gradually than earlier anticipated.
Either way, T-bills have started to look far less attractive. And investors might do well to look elsewhere to make their money grow.
Hunt for yield
Analysts from DBS Group Research, for instance, believe there could be a “wall of money” that could soon flow into Singapore-listed real estate investment trusts (S-Reits) as retail investors turn away from T-bills.
In the research house’s recent report, led by its head of regional property research Derek Tan, the team noted that cut-off yields for the past few six-month T-bills issues have remained in the range of around 3 per cent.
In comparison, S-Reits are currently offering yields of around 6.2 per cent – more than double that of T-bills.
DBS estimates that there could be some S$4 billion to S$7 billion in potential inflows into S-Reits, assuming retail investors reinvest 5 to 8 per cent of their T-bill proceeds.
“Investors with T-bills expiring between October 2024 and March 2025 could potentially face a 0.8 percentage point – or higher – decline in yields if they remain invested in the upcoming T-bills issue,” the analysts said.
“We believe that this calls for a potential reallocation into other asset classes – such as bonds and S-Reits – that offer higher returns than T-bills,” they added.
Yields have improved for S-Reits, partly as they have been battered down amid higher-for-longer interest rates and, more recently, uncertainty over the number of rate cuts to be expected this year.
The investment trusts also have to grapple with the potential impact of Trump’s tariffs and executive orders.
Singapore Exchange market strategist Geoff Howie noted that S-Reits have recorded the highest net institutional outflow among sectors in the Singapore market, which has logged total net institutional outflow of S$688 million since the start of the year.
“Reits saw the most net outflow at S$294 million, followed by financial services at S$276 million,” Howie said, adding that the S-Reit sector has averaged a 0.5 per cent decline in the year to Feb 10.
JPMorgan Chase analysts believe that S-Reits could continue to see pressure from US dollar strength and elevated US yield.
“We believe there need to be concrete changes in the macro environment to support a clear shift to S-Reits,” the analysts said in a Feb 10 report.
Retail investors, though, could enjoy the higher yields should they get into the market now and look for opportunities.
A research report released by DBS on Wednesday (Feb 12) found that younger Singaporeans set aside too little of their monthly salaries to investments, and allocate too much of what they do invest into fixed income such as T-bills and Singapore Savings Bonds.
“Given their longer time horizon, younger investors can consider allocating a larger portion to other asset classes – such as equities – for potentially higher returns,” the bank said.
But with the current “risk premium” for equities such as S-Reits looking attractive, perhaps even the more conservative, not-so-young investors can afford to dial back on T-bills.
