6-Month T-Bill Auction Trend in 2022 and 2023

This Opinion post first appeared in my blog here: https://pwlcm.wordpress.com/2024/01/01/6-month-t-bill-auction-trend-in-2022-and-2023/

Disclaimer: This post is just for educational sharing purposes. Please do your own due diligence on any products mentioned in this post.

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2023 has come to an end. We are now into 2024.

We have seen the last 6-month T-bill (BS23125H) auction closed on 20 December 2023, and MAS has updated the main Auctions and Issuance Calendar page with 2024 T-bill issues, and moved the 2023 calendar away here: https://www.mas.gov.sg/bonds-and-bills/auctions-and-issuance-calendar/auction-and-issuance-calendar-2023

Do take note that the last 6-month T-bill listed in the 2023 calendar is technically the first 6-month T-bill (BS24100F) in 2024 as both its auction and issue dates are in January 2024. It is listed in the 2023 calendar simply because of the announcement date is in 2023.

Now that the 2023 T-bill issues are closed, I thought it is a good time to do a year-end review on the T-bill auction trend in the past 2 years. And I just realized that the last time I wrote about T-bill in this blog was in December 2022, that was more than 1 year ago.

6-Month T-Bill Yield

We can see that the cut-off yield had risen from about 0.5% in January 2022 to the peak at 4.4% in December 2022. After that the cut-off yield had dropped but maintained within a band of 3.7% to 4.2% in 2023.

The median and average yields are the 2 lines below the cut-off yield line. The 3 lines are pretty close to each other during the first half of 2022, but the spreads became wider (especially average yield from cut-off yield) when cut-off yield increased to 3% and above from second half of 2022 onwards.

The main players that anchor the cut-off yields in T-bills are the financial institutions, who would likely submit bids rationally based on their money supply situation. When the yield increased to 3%, T-bills began to attract attention from the retail investors.

These group of incoming retail investors were mostly newbies and likely had no idea on how to bid and what yield to bid. They would either submit non-competitive bids, or submit lower competitive bids to undercut the institutions if they wanted to secure the T-bills. I believe the widening of yield spread is caused by the influx of the inexperienced retail investors.

Another observation is that the average yield is lower than the median yield. As median yield is the middle yield of the ascending list of successful competitive bids, for average yield to be lower means that the the lower half of successful bids are weighted more heavily towards below-average yields, what one might call the low-ballers. Again I believe this is primarily due to the inexperienced retail investors.

6-Month T-Bill Application & Allotment Amount

The top line is the total amount applied for 6-month T-bills in 2022 and 2023. The next 2 lines below are the amount allotted to the competitive and non-competitive applications respectively. It means that the sum of the bottom 2 lines is the total amount allotted to successful applicants.

We can see that the total amount applied is approximately double the total amount allotted, meaning the Bid-to-Cover Ratio is approximately 2.0, or about 2x oversubscription in layman terms.

If we look at first half of 2023, the non-competitive bids are virtually zero, again pointing to the institutions are participating only in competitive bids. This is to be expected because institutions want to have control over the desired yields they could be getting. They won't submit non-competitive bids leaving their fates to other players.

6-Month T-Bill vs 12-Week MAS Bill

In a blog post I wrote in November 2022 on the subject of Projection of T-Bills Cut-Off Yield, I presented 2 methods of T-bill yield projection.

The first method is using the preceding 12-week MAS Bill auction results to forecast the cut-off yield of the 6-month T-bill.

We can observe from the above chart that the 6-Month T-Bill cut-off yield was above the 12-Week MAS Bill cut-off yield for most part of 2022, but it went below from November 2022 onwards. This suggests that it were the retail investors who pulled down the T-bill cut-off yield to below the institution-only MAS Bill cut-off yield.

T-Bill Yield Premium Statistics

The following table shows some statistics on the T-Bill Yield Premium (%) over the preceding MAS Bill Yield:

The T-Bill Yield Premium over preceding MAS Bill ranges from 0.33% (T-Bill yield 33 basis points over MAS Bill yield) to -0.60% (T-Bill 60 basis points under MAS Bill) in both 2022 and 2023. This range happened in 2022 alone, and the range for 2023 had narrowed to 0.01% and -0.40%.

The -0.60% yield premium specifically happened in both November 2022 auction issues, the only 2 issues in 2022 with partial allotment to non-competitive bids. Take note that the immediate preceding T-bill (BS22121F) cut-off yield was 4.19%, the first time cut-off yield crossed 4% in 2022. Goes to show that the increasing interest in T-bills from retail investors resulted in oversubscription in non-competitive bids and pulled down the cut-off yield in the auction results, resulting in wider negative T-bill premium.

The average yield premium has turned from positive (+0.02%) in 2022 to negative (-0.21%) in 2023. Again showing the pull-down effect on cut-off yield by the retail investors in 2023.

With a standard deviation of 21 basis points for the 2 years, there is a 68% chance of T-Bill Yield Premium ranging between -0.31% and 0.11%. For example, if the preceding MAS Bill cut-off yield is 4%, then statistically 68% chance the T-Bill cut-off yield can fall between 3.69% and 4.11%.