Analysis of 6-Month T-Bill BS22124H Auction Results

This Opinion post first appeared in my blog here: https://pwlcm.wordpress.com/2022/12/08/analysis-of-6-month-t-bill-bs22124h-auction-results/

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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Auction Results

• Total Amount Allotted = S$4.6 billion
• Total Amount Applied = S$9.3 billion
• Total Non-Competitive Amount Allotted = S$1.2 billion
• % of Non-Competitive Amount Allotted = 100%
• Total Non-Competitive Amount Applied = S$1.2 billion
• Total Competitive Amount Applied = 9.3– 1.2 = S$8.1 billion
• Total Competitive Amount Allotted = 4.6 – 1.2 = S$3.4 billion
• Cut-off Yield = 4.4% p.a.
• Median Yield = 3.85% p.a.
• Average Yield = 3.73% p.a.

Compare BS22124H with BS22123S

Let’s compare the auction results of BS22124H with the previous T-bill (refer to Analysis of 6-Month T-Bill BS22123S Auction Results) as follows:

• Total amount allotted dropped from S$4.8 billion to S$4.6 billion.
• Total amount applied dropped from S$11.9 billion to S$9.3 billion.
• Total non-competitive amount applied dropped from S$2.4 billion to S$1.2 billion.
• % of non-competitive amount allotted increased from 77.78% to 100%.
• Total competitive amount applied dropped from S$9.5 billion to S$8.1 billion.
• Cut-off yield increased from 3.9% to 4.4%.
• Median yield increased from 3.5% to 3.85%.
• Average yield increased from 3.26% to 3.73%.

Observations

• Both overall supply and demand reduced.
• Non-competitive applications dropped to half of the previous T-bill auction, and no over-subscription this round.
• Both median and average yields increased suggests that the competitive bidders are awaken to the negative impact to the cut-off yield by lowballing.
• This mindset of rational bidding would likely continue in subsequent auctions as the bidders gain bidding experience.
• The cut-off yield is now at 2022 high of 4.4%.

MAS Bills to T-Bills Projection

Let's continue to update the MAS Bills to T-Bills Projection table with the latest yields (refer to “Projection of T-Bills Cut-Off Yield“):

The yield data continued in the negative territory, meaning yield curve inversion is still intact. The yield delta statistics remained at about the same values.

Linear Trendline Projection

An update on the Linear Trendline Projection chart with the latest yield (refer to “Projection of T-Bills Cut-Off Yield“):

The cut-off yield has returned to the trendline as projected in the Analysis of 6-Month T-Bill BS22123S Auction Results blog post. If the trend continues, we might see 4.55% yield for the last T-bill issue of 2022.

Auction Trend

I have tabulated the auction data of T-bills in 2022:

As we can see from the table, the Bid-to-Cover Ratio was typically at 2+ level. There was a spike to more than 3 with the 24 November 2022 auction, largely because of the 4.19% cut-off yield in the previous issue had attracted many new T-bill investors into non-competitive bids, causing over-subscription in the non-competitive applications for the first time in history. We can also see that the cut-off yield, median yield and average yield had all dropped quite a bit.

In subsequent issues, some of the non-competitive bidders switched to competitive bids as they have gained experience and hence more rational in bidding. As a result, the cut-off yield has resumed the upwards movement, so are the median and average yields.

Summary

• No over-subscription in non-competitive applications, hence 100% allotment.
• Competitive bidding is getting more rational with less lowballing.
• Demand had dropped as some bidders were attracted to higher rates in fixed deposits.