Singapore treasury bills (T-bills for short) are short-term debt securities issued by the Singapore Government. They are available in two formats: six months, or one year, and are issued in tranches several times throughout the year. The minimum investment sum is S$1,000.
Due to the fact that the Government has never once defaulted, T-bills carry the highest-possible credit ratings of AAA. This makes them one of the lowest-risk investments available.
T-bills are structured a little differently than bonds. Instead of paying out a coupon at set intervals, they are sold to investors at a discount to the par value – with the difference being the return on investment, or yield.
For example, if you purchase a 1-year T-bill with a yield of 4% per annum for S$10,000, you’d pay only S$9,600 (96% x S$10,000). At the end of the T-Bill’s tenure, you will receive S$10,000, “earning” S$400 in the process.
Note that the yield on T-bills is only determined at auction, so there’s no way to know beforehand what your exact return on investment will be. However, the historical yields of T-bills can act as a reliable benchmark.
Lastly, T-bills are tradable on the open market, creating an alternative way to turn a profit. This may be difficult to achieve in practice, given the low trading volume and liquidity.
What’s the Difference Between 6-Month and 1-Year T-Bills?
|Twice a month
|Once per quarter
The table above displays the three main differences between 6-month and 1-year T-bills – tenor, yield and frequency.
Tenor is self-explanatory: a 6-month T-bill has a duration for six months, and a 1-year T-bill has a duration of 12 months. This can impact your investing decision, which we will discuss in further detail later on.
The yield offered on both types of T-bills differs. Traditionally, a longer-term T-bill will attract a higher yield compared to its shorter-term counterpart; this is to make up for the opportunity cost incurred in holding an investment for longer.
However, T-bill yields are determined via auction. According to the latest yields at the time of writing, 6-month T-bills have a slightly higher yield – 3.75% over 3.67%. Although not significant, this reflects greater demand among investors for the shorter-term yield, which may be prompted by expectations of a pause (or reversal, even) in US Fed rate hikes.
The third difference between 6-month and 1-year T-bills is the frequency of issuance. 6-month T-bills are issued twice a month, so they may be considered more flexible and convenient. Meanwhile, 1-year T-bills are issued once every quarter, and may demand a tighter grasp on timing.
Related: T-Bills vs Singapore Savings Bonds vs Fixed Deposits vs Endowment Plans: Which One is Right For You?
Which T-Bill Should You Choose – 6-Month or 1-Year?
Recall that while T-bills are tradeable on the open market, a favourable trade may be difficult to attain, given the low liquidity and volume. This means that when you invest in T-bills, you should expect to hold them for the entire duration in order to receive the yield in full.
Accordingly, you should choose carefully whether to purchase a 6-month or a 1-year T-bill.
You may wish to consider:
- Your investment timeline. If you need your money back within a few months, choosing the 6-month T-bill will prove more suitable. Only choose the 1-year T-bill if you can remain invested for 12 months or more.
- Your perspective on the market. If you believe the stock market will soon offer a better yield than T-bills, choosing a shorter tenor will give you greater flexibility to respond accordingly. However, if you feel the market will remain depressed, you may want to lock in your returns by choosing a T-bill with a longer tenor.
- Availability of T-bill. The timing of your investment may also determine which you may choose. If you are looking to invest in T-bills right now but don’t want to wait another three months for the next tranche of 1-year T-bills, your only option would be to invest in a 6-month T-bill instead.
To be sure, the differences between 6-month and 1-year T-bills are really quite minor – and may be negligible over time. The main consideration really is how soon you may need your money back.
How to Bid for T-Bills
Investing in T-Bills
To start investing in T-bills, here’s what you’ll need.
- A bank account with DBS/POSB, UOB or OCBC
- A Central Depository Account (CDP) linked to the bank account you want to invest with
- If investing using your CPF Ordinary Account or Supplementary Retirement Scheme (SRS)
- A CPF Investment Account or SRS Account with DBS/POSB, UOB or OCBC
Bidding for T-Bills
Once you have set up the appropriate account, you can start applying for the latest available T-bills. As mentioned earlier, T-bills are sold via auction. During application, you will be asked to choose between competitive and non-competitive bids.
Competitive bids for T-bills
A competitive bid allows you to specify the minimum yield you are willing to accept for investing in the T-bill. This is expressed in percentage terms, up to two decimal places.
If your bid is too high, it will be rejected. Hence, the lower the yield, the more competitive your bid will be. Note that you can submit multiple competitive bids.
Non-competitive bids for T-bills
In a non-competitive bid, you only need to specify your investment amount. You are willing to accept the cut-off yield, which is the highest accepted yield of successful competitive bids.
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 prorated basis.
The balance of the issue amount will be awarded to competitive bids from the lowest to highest yields.
Besides T-Bills, What Are Some Similar Securities You Can Invest In?
If T-bills don’t exactly suit your requirements, consider these other securities issued by the Singapore government.
Singapore Government Securities (SGS) bonds pay a fixed interest rate, and are available in a wide range of tenors – from two years to 50 years.
At present, there are three categories of SGS bonds as follows:
- SGS (Market Development): to develop the domestic debt market
- SGS (Infrastructure): to finance major, long-term infrastructure
- Green SGS (Infrastructure): to finance major, long-term green infrastructure developments
SGS bonds are issued every month, and require a minimum investment amount of S$1,000. Once bought, you can expect a payout from your SGS bond once every six months. Historically, SGS bonds have yielded between 2.67% to 3.5%.
Singapore Savings Bonds
Singapore Savings Bonds (SSBs) are fully-backed debt instruments with 100% capital guarantee. That means you can redeem your bonds at any time with no penalty, to receive your principal amount and any accrued interest.
For that reason, SSBs are highly flexible, and do not require you to decide on a specific investment period at the start.
Each SSB has a tenor of 10 years, with coupon payments twice a year. The annual interest paid gradually increases, hitting its highest levels towards the final few years of the bond. Hene, it is preferable to hold your SSB for the full duration in order to receive the highest returns.
The August 2023 tranche of SSB pays an interest of between 2.97% to 3.04% per annum.
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