Invest 101

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

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July 2, 2024

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Keeping your excess savings in your bank savings account may only give as low as 0.05% per annum (p.a.) interest – hardly sufficient to keep pace with inflation over the long term.

Even savings accounts with higher interest rates, such as OCBC 360 account, UOB One Account or DBS Multiplier Account, may not only give you less interest as you save more, but also require you to jump through more hoops to unlock higher interest rates.

One option to earn a higher return on your excess savings is to invest in Treasury Bills (T-bills) issued by the Singapore Government. These debt instruments allow you to earn a higher return that is based on the current market environment.

Here’s what you need to know about Treasury bills or T-bills, and how you can invest in them in Singapore.

Treasury Bills Are One Of The Four Types Of Singapore Government Securities (SGS)

Debt securities issued by the Singapore Government are collectively known as Singapore Government Securities (SGS). These SGS are considered safe investments as they are fully backed by the Singapore Government, which has the strongest credit rating accorded by international credit rating agencies, signifying a lower risk of default.

Rating Agency
Local Currency
Foreign Currency

Moody’s
Aaa
Aaa

S&P
AAA
AAA

Fitch
AAA
AAA

R&I
AAA
AAA

Source: MAS

As described, there are four types of SGS: Treasury bills (T-bills), SGS bonds, Singapore Savings Bonds (SSB), and Cash Management Treasury Bills (CMTBs).

Treasury bills (T-bills) are short-term bills that are offered in either a 6-month or 1-year tenor. They are also called “zero coupon bonds” because they don’t pay interest during the life of the bond. Instead, they are sold at a discount to their face value, which the investor will get back at full value upon maturity.

For example, if you successfully apply for $1,000 worth of 1-year T-bills at 3.75% interest per annum, you would only need to pay around $962.50. When the bond matures, you will receive the full lump sum of $1,000, which includes the $37.50 interest.

Treasury Bills Are Issued To Develop Singapore’s Debt Markets

The Treasury bills and SGS bonds (Market Development) are issued by the government primarily to develop the local debt markets. The issuance of these bonds serves three main reasons:

#1 To build a liquid SGS market to provide a robust government yield curve to serve as a benchmark for the pricing of private debt securities

#2 To foster the growth of an active secondary market for both cash transactions and derivatives to enable efficient risk management

#3 To get both domestic and foreign issuers and investors to participate in the Singapore bond market.

Main Features of Singapore T-Bills

T-Bills can be bought by both institutions and individuals, including non-residents, over the age of 18 years old.

The minimum investment amount in T-bills is $1,000, with subsequent increments of $1,000. There is no maximum amount that an individual can hold, but there are limits—up to $1 million in non-competitive bids—for each auction.

The T-bills are sold on a uniform price auction method, which requires settlement within T+3 days.

T-Bills And SGS Bonds Are Sold Under A Uniform Price Auction Method

As opposed to the Singapore Savings Bond (SSB), which is based on a “quantity ceiling” format, the SGS and T-bills are issued via a uniformed-price auction. Successful bids or applications will be given out at the uniformed yield, which is the highest accepted yield (or cut-off yield) of successful competitive bids submitted at the auction.

When applying for T-Bills or SGS bonds, investors will be required to choose between making a competitive or non-competitive bid.

Competitive Bid Vs Non-Competitive Bid

A competitive bid requires you to specify the price (to be expressed in terms of percentage yield, up to two decimal places) that you are willing to pay for the SGS bonds or T-bills. A lower yield represents a more competitive bid.

A non-competitive bid does not require you to specify a price, and instead, you will be allotted the SGS bonds or T-bills at a uniform yield based on the results of the competitive tenders. This could be a better choice for retail investors, who might not know enough to put in a competitive bid.

Additionally, all non-competitive bids will be satisfied first, before the balance is then awarded to those who have submitted competitive bids. You stand a higher chance of securing your allotment with a non-competitive bid.

6-Month and 1-Year Treasury Bill Rates Historically

In general, short-term interest rates began rising in 2022 as the US Federal Reserve (Fed) started raising its interest rates to combat persistently high inflation.

Here’s a look at Singapore’s historical rates for the 6-month T-bills from 3 Jul 2023 to 2 Jul 2024.

Source: MAS

Here’s a look at Singapore’s historical rates for the 1-year T-bills from 3 Jul 2023 to 2 Jul 2024. The 1-year rates follow a similar trajectory as the 6-month interest rates.

Source: MAS

The latest issuance (BS24112W) 6-Month T-bill had a cut-off yield of 3.74% p.a.

The next issuance of the T-bills will be on:

ISIN Code: BS24113N
Announcement Date: 27 Jun 2024
Auction Date: 4 Jul 2024
Issue Date: 9 Jul 2024
Maturity Date: 07 Jan 2025
Tenor: 6 Months

ISIN Code: BY24102W
Announcement Date: 18 Jul 2024
Auction Date: 25 Jul 2024
Issue Date: 30 Jul 2024
Maturity Date: 29 Jul 2025
Tenor: 1 Year

Should You Invest In T-Bills?

Given that individual investors can buy different kinds of bonds, here are some factors to think about if you want to add T-bills to your portfolio.

T-bills are a safe, short-term investment option that can be used for diversification of your investment portfolio. It allows you to receive a fixed interest payment at maturity.

Nevertheless, investments in T-bills or bonds generally may not generate sufficient returns to beat inflation in the long term. Therefore, the T-bills should be considered in totality with your other assets rather than being the only choice of investment.

Additionally, as the interest rates are determined based on a uniform-price auction, there is no certainty as to the interest rate that you will receive when you apply for T-bills. In the worst-case scenario, you may have to accept negative interest-bearing T-bills.

Lastly, selling the T-bills before maturity may result in losses as the bond prices may fluctuate depending on the market interest rate environment.

How To Buy T-Bills In Singapore

The 6-month T-bills are issued every two weeks, while the 1-year T-bills are issued every three months. Check out the Auctions and Issuance Calendar for details on the latest T-bill issuances. 3-month T-bills were stopped on 12 December 2013.

You can buy the T-bills using cash, supplementary retirement scheme (SRS) funds, or CPFIS Investment scheme funds. Here’s the process using the three methods.

Cash Applications

To buy T-bills using cash, you need a bank account with one of the three local banks (DBS/POSB, OCBC, and UOB). You will also need an individual Central Depository (CDP) account with direct crediting services activated. This is to allow your coupon and principal payments to be credited directly to your bank account.

Once prepared, you can apply for the T-bills through the local banks’ ATMs and internet banking portals.

If successful, the transaction will be reflected on your CDP statement.

SRS Applications

To buy T-bills using SRS, you need an SRS account with one of the three SRS operators (DBS/POSB, OCBC, and UOB). After that, you can apply for T-bills through your SRS operator’s online banking portal.

If successful, the transaction will be reflected in the statements issued by your SRS operator.

CPFIS Applications

To buy T-bills using CPFIS-OA investments, you would need a CPF Investment Account with one of the three CPFIS agent banks (DBS/POSB, OCBC, and UOB). You can apply to buy T-bills using the respective banks’ internet banking platform or head down to a branch during opening hours.

If successful, the transaction will be reflected on your CPFIS statement sent by your agent bank.

How To Sell T-Bills In Singapore

If you need to sell your T-bills before the maturity date, you can do so with any of the three local banks by visiting their main branches.

However, do note that, depending on the market conditions, the price of the SGS T-bills might be higher or lower than what you paid.

This article was first published on 21 September 2022 and has been updated with the latest information on the Treasury Bills (T-bills).

The post Treasury Bills (T-bills): What Are They And How You Can Buy Them appeared first on DollarsAndSense.sg.

December 26, 2024

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