SINGAPORE: On Thursday, Sept 26, Singapore’s six-month Treasury bill (T-bill) yield fell to its lowest level in over two years, marking a cut-off yield of 2.97 per cent per annum at the latest auction.
According to CNA, this marks the lowest return on a six-month T-bill since August 2022, which comes as little surprise to market watchers, particularly after the United States Federal Reserve recently announced its first interest rate cut in four years.
T-bills are short-term debt securities issued by the Singapore government, typically maturing in one year or less. They are sensitive to shifts in interest rates. In December 2022, as the Federal Reserve ramped up its efforts to tackle inflation, yields on Singapore’s six-month T-bill surged to 4.4 per cent, a peak not seen in decades. Since then, yields have generally remained above the 3.5 per cent mark until recently.
In the months leading up to this auction, yields started to drop significantly as market sentiment shifted with growing expectations of US rate cuts.
On Aug 1, yields fell below 3.5 per cent for the first time, landing at 3.4 per cent. This downward trend continued in subsequent auctions, with yields decreasing to 3.34 per cent on Aug 15, 3.13 per cent on Aug 29, and 3.1 per cent on Sept 12.
Eugene Leow, a senior rates strategist at DBS, explained that T-bill rates have already factored in the possibility of the US Federal Reserve easing in the coming months, which is why the rates started to decline even before the first rate cut.
Following the Federal Reserve’s recent 50-basis-point cut in its key lending rate to a range between 4.75 per cent and 5 per cent, further rate cuts are widely expected. Analysts predict that this trend may continue until 2026. DBS analysts, in particular, expect the Fed to lower rates to about 3.5 per cent by mid-2025.
Leow noted that since US and Singapore interest rates have a “high correlation,” T-bill yields could potentially move down to around 2.5 per cent by then. /TISG
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