Saturday, June 2, 2018

Taking a closer look at Treasury Bills

Plenty of bloggers have turned to the Singapore Savings Bonds (SSBs) as interest rates are on the rise.

Similarly, I have thought of parking my cash in SSBs as well. However, there have been some hesitation on my part. First, a couple of facts about my financial position. My cash position, on absolute terms, is not huge (~$40k). I want a place to park some (not all!) of my cash to earn an interest rate that is higher than the prevailing interest rates offered by your typical savings account. I want a financial product that has a short tenure and can be readily converted back into cash with minimal delay and, if possible, with no penalty inflicted on me.

Some of the current fixed deposit promotions seem decent. However, I do not have multiples of $20k that I could use to create a fixed deposit "ladder." While some offer a short tenure (3 months), I do not fancy the "50% cut" of my cash position. When the market did a faux-turn in Feb this year, I had the experience of terminating my FD early and losing the interest due to my low cash position. I documented my experience here and I do not want to repeat it again.

SSBs are another alternative. What really makes me hesitate here is the application fee and the early redemption fee. Considering that I would hypothetically allocate only a small portion of my cash to it, this move would not make any sense as the application fee and early redemption fee will wipe out the returns. Yes, at this juncture in my life, I neither foresee myself holding the SSBs for the entirety of the 10 years nor put enough cash in it such that the application fee and early redemption fee is a non-issue.

A third option which I am still considering is Treasury Bills (T-Bills). I obtained the data from the Singapore Government Securities website and plotted the following 1-year T-Bill yield chart. Similar to the SSBs, the yield for the 1-year T-Bills have been increasing over time.

Singapore T-Bills Yield across time

Unfortunately (for me), the 3-month and 6-month T-Bills have already been discontinued. What remains is the 1-year T-Bills (which is reflected in the chart above).

Why did I consider T-Bills?

It works for people like me who has limited cash and wants to allocate an even smaller portion of that limited cash to higher-yielding instruments. According to the FAQs for individual investors, the "minimum denomination to purchase SGS Bonds/T-bills is S$1000, and you can invest in multiples of S$1000."

Singapore T-Bills Investment Amount

Individuals are able to purchase T-bills at primary auctions or in the secondary market. For purchases made at primary auctions, the details could be found in the screenshot below, which I took from their FAQs for individual investors:

Purchase of Singapore T-Bills

As my broker is DBS, I referred to the link provided. There are no charges that are imposed for applications made via DBS iBanking for SGS (see screenshot below).

Singapore Government Securities no service charge

In addition, Singapore Government Securities (SGS) such as Bonds and T-Bills are custodised with the Central Depository (CDP). The FAQ at SGS's website states that "with effect from 1 April 2013, CDP has removed the administrative fees of 0.08% (8 basis points) of the face value of the SGS per annum."

Singapore Government Securities CDP admin fees removed

Based on the above pieces of information, we know that there are no administrative fees (from CDP's side) and application fees (for those who are using DBS, at least. I did not check for the other two banks) for those that take part in the primary auction.

It is quite rare to hear from bloggers blogging about T-Bills. The only blog post which I have come across is a post by Cory. Interested readers can refer to it.

As for purchasing SGS such as T-Bills from the secondary market, I shall refrain from commenting on it. Partly because I have no experience with it and partly because I suspect that there will be trading fees involved that will eat up the returns.

As it is, if I were to commit a small sum to T-Bills, I would do it via the primary auction route instead of the secondary market route. Dates for primary auctions could be found in SGS's website. As shown in the screenshot below, select "Issuance Calendar", followed by "T-Bills" (if you are interested in T-Bills).

Singapore Government Securities Issuance Calendar

Selecting T-Bills will take you to a separate page which details the T-Bills primary auctions which was/will be conducted in year 2018 (see screenshot below).

Singapore Government Securities T-Bills Auction Dates in 2018

Do newly issued T-Bills affect the yields of existing T-Bills that are already on the market? I was curious to find the answer. The following 2 screenshots show the auction results for the 26 January 2018 and 25 April 2018 auctions, respectively.

SGS 26 January 2018 T-Bills Auction Results

SGS 25 April 2018 T-Bills Auction Results

If you look at the T-Bill yield chart at the very top of this blog post, the T-Bill yield at 31 January 2018 and 30 April 2018 are 1.38% and 1.74%, respectively.

In theory, the market will readjust itself to the yield of the newly issued T-Bills. We see that this is the case when the bond market closed on 31 January 2018; the newly issued T-Bills yielded 1.38% and the historical data showed the same figure. 

However, reality did not corroborate theory on 30 April 2018. The newly issued T-Bill yielded 1.76% while the historical data showed 1.74%.

Market forces push SGS prices and yields up or down. Accordingly, it could be inferred that investment capital is not guaranteed (but still relatively safe as it is the Singapore Government we are talking about here), unless one holds all the way to maturity. For investors who require a capital guaranteed instrument, they could consider sticking with SSBs.

As for myself, I'm still contemplating whether are T-Bills a suitable financial instrument for me to use. If I do use them, I have to be certain that I will be holding them for the full duration, since a rising interest rate environment will see money flow towards newer T-Bill issuances. For now, I'll wait and see how the July 2018 issuance turns out!


  1. Hi UN,

    I had T-Bills in the past. But the yield got lower and lower; and I did not purchase anymore.

    Thanks for your post and maybe I will take a look too.


    1. Hi Passive Income Former,

      Welcome! Glad you enjoyed it.

      Just curious, there is no administrative fees and application fees, but are there any transaction fees when you applied for them in the past?


    2. I used POEMS. I don't think there was transaction fees. I stopped when the yield dropped below 2.5%.


    3. Thanks Passive Income Farmer for the info. Cheers!

  2. Hi unN

    Thanks for the insights . I was thinking of going into t bonds / bills to enhance my portfolio allocation. You did most of the research for me.

    If my understanding is now wrong,
    T bonds and bills have a slight speculative element whereby bond prices can fluctuate if divested / bought prior to maturity.

    Singapore savings bond despite its name, is more of an enhanced savings account which encourages long term savings rather than a bond as it cannot be sold / bought in the secondary market.

    1. Hi INTJ,

      Glad my post has been helpful to you.

      Yes, my understanding aligns with yours. As I do not have direct experience with the bond market, I did not want to comment on that.


  3. Haha. Like what INTJ said, the bond price will fluctuate, hence the capital will not be guaranteed... SSB on the other guarantee that the capital will be intact but you lose some liquidity (few weeks to a month).

    In the current raising interest rate environment, bond price will fall to compensate for the yield... I would think as salaried worker, a typical salary crediting savings account such as Multiplier/OCBC360 would be good enough for 40k cash?

    1. Hi KPO,

      I use the CIMB FastSaver as my salary-crediting savings account. I don't use credit cards and I pay my bills to my mum as everything is under her name, so I can't hit the credit card & bill payment criteria.

      Yup, that's why if I go the T-Bills route, I have to be dead certain that I will hold for the full duration.

  4. Hi. One need to have the holding power to maturity if one is in t bill / treasury. Usually one will lose $ on the capital if one has to liquidate in the secondary mkt. Vol is very thin if not zero on most days.
    It is more suitable for ppl with huge cash hoard and dont need it at all.

    1. Hi Henry,

      Thanks for your input. Much appreciated!


  5. Hi. One need to have the holding power to maturity if one is in t bill / treasury. Usually one will lose $ on the capital if one has to liquidate in the secondary mkt. Vol is very thin if not zero on most days.
    It is more suitable for ppl with huge cash hoard and dont need it at all.

    1. Hi UN,
      T bill has face value that changes but SSB does not.

      Have to understand that T bill face value will vary w interest. I believe the reason why invest in ssb lately is bcos it is a hedge agst expected increase of interest.

      If interest increase, face value of T bill will drop. And if u redeem before maturity, u will incur the face value drop.

      But SSB face value is constant.

      Not to ask u which to invest or not invest, just to clarify.

      maybe can refer to a fellow blogger frd post in 2015. I did already had SSB myself since 2015 n did lots of research back then.

    2. Hey Rolf,

      Good to hear from you. Thanks for sharing!


  6. Unintelligent Nerd,

    I'll have a bit of fun here. Don't take what I say too seriously!

    Buying Treasuries here is like equities laggards buying near the top during 2000 or 2007.

    But then again, shorting Treasuries have been a widow making trade for the last several years...

    Who knows?

    When everyone thinks interest rates are going up, your purchase of Treasuries now may be the contrarian trade like buying equities during 2003 or 2009 ;)

    Have fun!

    Institutions buy Treasuries for the capital gains; retail buy for the yield.

    1. Hi SMOL,

      Maybe this is a foreshadowing of what is to come (continuing from our sms convo)! HAHA! Sounds very buay hiao bai like that! :P

  7. Hello UN,

    I didn't know that T-bills existed until I read your blog post lol. If the yield is at 1.76%, then I believe that it is comparable to SSB's 1.72% yield in this month's issue. I personally feel that SSB are already pretty liquid and I have also parked a small portion of my emergency funds with them last month. :)

    1. Hi Miss Niao,

      Glad my blog post was informative! Yup, SSB's 1st-year yield is linked to T-Bill's yield.

      I am still thinking where to park my money, lol.

  8. T bill is not liquid compared to SSB. Difficult to cash out like SSB if an unforeseen event happens before maturity. Thats why i mentioned earlier its for those who are very cash rich. So I bought SSB full amount instead.

  9. Hi UN,

    If you want liquidity, best option I think is to put in DBS multiplier account (or whichever bank that gives good interest rate for hoops that you could jump through).
    SSB is really not too bad - considering application and redemption fee is just $2 each, and can get bond yield/interest every half a year. At most withdraw soon after getting interest.
    How's T bills' liquidity in secondary market?

    1. Hi Rainbowcoin,

      After thinking so much, in the end, I just left my cash in my savings account.

      I prefer liquidity. :)

      I heard that T-Bills liquidity in the secondary market is horrible (according to posters above).