Singapore Treasury Bills (T-bills): What Is Cut-Off Yield, Median Yield, And Average Yield

Do you have quite a nice pot of money saved and are wondering what to do with it in this high interest rate environment? An option to earn a higher return on your excess cash is to invest in Singapore Treasury Bills, also known as T-bills.

We have covered various topics on T-bills including – Treasury Bills (T-bills): What Are They And How You Can Buy Them and Why Every Singaporean Should Apply To Invest Their OA Funds In T-Bill – as the high yields now make them attractive investment options.

This article will focus more on the T-bill bid choices and the yield returns as well as provide an understanding of the various yield information shown in your T-bill auction results – cut-off yield, median yield, and average yield.

Recap: What Are T-bills

Singapore T-bills are 1 of 4 types of Singapore Government Securities (SGS). The other types of SGS are SGS bonds, Singapore Savings Bonds, and Cash Management Treasury Bills. T-bills have short maturities of only 6 months or 1 year.

You can invest in T-bills with cash, Supplementary Retirement Scheme (SRS) or Central Provident Fund (CPF) funds with no overall limit and you will receive a fixed interest payment at maturity.

These short-term bills are also called “zero coupon bonds” because no interest is paid out during their term and the investor can only get the full value upon maturity. They can be bought by both institutions and individuals, including non-residents who are over 18 years old.

The minimum investment amount for T-bills is $1,000 and you can increase the amount with subsequent increments of $1,000. There is no maximum amount that an individual can hold, but each auction has limits (such as up to $1 million in non-competitive bids).

Read Also: Treasury Bills (T-bills): What Are They And How You Can Buy Them

Should I Make A Competitive Or Non-Competitive Bid And What Yield Will I Get?

The 6-month T-bills are issued every 2 weeks, while the 1-year T-bills are issued every 3 months. T-bills are issued via auctions and you can find out more about the issuance dates here.

The auction announcement includes information such as the amount of the security on offer, auction date, closing times, issue date, and terms and conditions of the offering.

To bid for the security, you make a bid submission when an auction is announced. There are two types of bidding for the T-bills – competitive and non-competitive bids.

The yield return you will get will vary depending on whether if you did a competitive or non-competitive bid.

If you are a retail investor, it is better to place a non-competitive bid for your T-bills. You only need to specify the amount you want to invest, not the yield. You will be allotted the T-bills at a uniform yield based on the results of competitive tenders. You also have a higher chance of securing your allotment too, as all non-competitive bids will be allocated first, before competitive bids. Select this choice if you wish to invest in the bond regardless of the return or are unsure of what yield to bid.

For competitive bids, you have to specify the price you are willing to pay for the T-bill. A lower yield means a more competitive bid as you are indicating that you will accept a lower interest return. You can specify the yield you are willing to accept in percentage terms, of up to 2 decimal places. If you bidded equal to the cut-off yield, your return might be lower. You can submit multiple competitive bids for this option.

This is suitable for investors with a yield return in mind and already have other investments with competitive yields to consider and a competitive bid will suit your needs as the allotment of funds will be determined by your desired yield.

You can make a competitive bid lower by referencing from the previous auction results to ensure that you get a higher allotment, but that doesn’t guarantee that you will get all the bids that you want as well. Even though you might walk away with a lower yield because of your competitive bid, you must note that this is the nature of an auction system.

When checking out the results of an issuance which are released about an hour after each T-bill auction, you will notice information such as the percentage of applications allotted at cut-off and the total amount of the security applied for and allotted. There are also various yield representations shown – cut-off yield, median yield, and average yield.

Results of auction of taxable book-entry Singapore Government Treasury Bills to be issued on 18 April 2023

Tenor	182 Days
Total Amount Allotted Amount Allotted to Non-Competitive Applications Amount Allotted to MAS	SGD 4,800,000,000 SGD 955,700,000 NIL
Total Amount Applied	SGD 12,300,000,000
Cut-off Yield & Price	3.75% p.a. and 98.13%
Median Yield & Price	3.65% p.a. and 98.18%
Average Yield & Price	3.31% p.a. and 98.35%
% of Competitive Applications at Cut-off Allotted % of Non-Competitive Applications Allotted	Approximately 45% 100%
Issue Code ISIN Code Maturity Date	BS23107V SGXZ38306411 17 Oct 2023

Source: MAS

Read Also: How Much More Interest Will You Get If You Invest Your CPF Special Account In T-Bills

What Is The Cut-Off Yield In The T-bill

To understand what the cut-off yield determines, we take a look at the latest auction result (BS23107V) for reference. It shows a cut-off yield of 3.75%, as seen in the chart above.

You will get the bond at the cut-off yield if you bid for a non-competitive allocation, which is known as the highest accepted yield of successful competitive bids.

All non-competitive bids will be allotted first, up to 40% of the total issuance amount. If the amount of non-competitive bids exceeds 40%, the bond will be allocated to you on a pro-rated basis. The balance of the issue amount will be awarded to competitive bids from the lowest to highest yields.

To illustrate the yield that can be earned from your investment when investing in a T-bill via a non-competitive bid, let’s refer to the 6-month T-bill (BS23107V) auction results with a cut-off yield of 3.75%. For example, you plan to invest $5,000 of your spare cash for the latest issuance.

The amount of interest earned from the T-bill is:
$5,000*3.75%*6 month = $93.75

What Is The Median Yield In The T-bill

The median yield shows the mid-point of all bidders. For example, in the latest auction results (BS23107V) the median yield is at 3.65%.

The yield is determined by splitting the dataset in half. It is calculated by arranging the data from smallest to largest and finding the data point that has an equal number of values above and below it.

It is not as important a yield to look at as it does not show the yield you will get. Rather it is a data set that can be used to find out some things about the latest auction.

For example, what you can note from the issuance for the latest auction result (BS23107V)  is that as the median yield amount of 3.65% is not as close to the average yield amount of 3.31%, which reflects a less symmetric distribution. In a symmetric distribution, the average yield and median yield are closer to each other in amount.

If there are many competitive bidders bidding for a skewed amount – meaning there are more outliers bidding for the amount compared to the rest of the bidders – then the median yield will deviate more in yield amount from the average yield.

What Is The Average Yield In The T-bill

The average yield depends on all values in the dataset and includes the weightage of the bid which means that it reflects the decisions of those with more money.

This yield data calculates the sum of all investment divided by applicants and it is more likely a yield indicator institutional investors look at when considering future T-bill bids or when comparing yield returns from other investments.

Another information that can be derived from this yield figure – as seen by the T-bill (BS23107V) auction results – is that most competitive bidders are bidding conservatively in order to get the T-bill successfully as the average yield is lower than the cut-off yield.

This article was originally published on 19 December 2022 and updated with new information.

Read Also: Treasury-Bills, Fixed Deposit Accounts Or Money Market Funds: Pros And Cons Of Using These Fixed Income Investments To Protect Your Capital

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