Diversifying Your Investment Porfolio With 1-Year T-Bills

Portfolio Diversity: Should You Invest In 1-Year T-Bill?

Treasury Bills, or T-Bills, are a cornerstone of short-term investment in Singapore, offering a secure option for investors. In 2023, the Monetary Authority of Singapore (MAS) introduced a new 1-Year T-Bill scheme, highlighting its significance in a fluctuating economic landscape. This initiative provides investors with a promising avenue for managing their finances amidst prevailing economic uncertainties.

This guide aims to demystify benefits and drawbacks of MAS’ new investment option, shedding light on the nuances of T-Bills and how they fit into a diversified portfolio investment strategy.

ICYMI: What are Treasury Bills (T-Bills)?

T-Bills are short-term, government-issued securities that represent a safe and liquid investment option. Unlike other government bonds, T-Bills do not pay interest upfront but are sold at a discounted rate and redeemed at face value upon maturity, the difference constituting the investor’s return. 

Available in 6-month and 1-year maturities, they offer flexibility to fit different investment horizons and strategies, allowing investors to choose based on their liquidity needs and market outlook.

This mechanism sets T-Bills apart as a low-risk investment Singapore option for conserving and growing capital over the short term. As we have explored in our comprehensive guide to Singapore’s T-Bills, these instruments are integral to a well-rounded CPF investment account and portfolio, offering a stable foundation amidst the volatility of the financial markets.

Balance certainty, flexibility and returns up to 4.7% p.a. with StashAway

Through cash management products like StashAway Simple™ (for ultra-low-risk liquidity), and StashAway Simple Plus™ (for higher projected yields), investors seeking a blend of competitive yield and low risk can find tailored solutions to meet different financial needs.

What Makes 1-Year T-Bill Different From 6-Month T-Bill?

The difference between 6-month and 1-year T-bills comes down to maturity, liquidity, and the interest rate environment at the time of each auction.

In general, a 1-year T-bill may offer a higher yield than a 6-month T-bill because investors are locking up their money for a longer period. That is currently the case, with the latest 1-year Singapore T-bill yield at 1.68%, compared with the latest 6-month T-bill yield at 1.59%.

However, T-bill yields are auction-based, so the yield difference can change depending on market demand, interest rate expectations, and when each issue is offered. A higher 1-year yield does not automatically mean it is the better option for every investor.

For investors who want quicker access to their cash, the 6-month T-bill may still be more suitable because it matures sooner and gives you the flexibility to reinvest if interest rates change. The 1-year T-bill may be more appealing if you do not need the cash in the near term and prefer to lock in a higher return for a longer period.

Ultimately, the choice between 6-month and 1-year T-bills should depend on your liquidity needs, investment horizon, and view on where interest rates may move next — not just the headline yield.

How Do 1-Year T-Bill Hold Up Against Savings Accounts?

When comparing 1-year T-Bill and Savings Accounts, T-Bills offer higher yield potential with relatively low risk, standing out during periods of low bank interest rates, which are susceptible to fluctuations and often fall below inflation, eroding purchasing power. 

However, Savings Accounts provide immediate liquidity with no lock-in period, allowing for easy access to funds for emergencies or other needs. While 1-year T-Bill may offer better returns, influenced by auction outcomes, their fixed term means investors must plan their cash flow to accommodate the lock-in period.

How Do 1-Year T-Bill Hold Up Against Fixed Deposit Accounts?

While both Fixed Deposit Accounts and 1-year T-Bill necessitate locking in funds until maturity, each offers flexibility in accessing finances. 1-year T-Bill can be sold on the secondary market, providing a liquidity advantage. Fixed Deposits, though subject to early withdrawal penalties, allow for partial fund retrieval. 

On the other hand, Fixed Deposits edge out with guaranteed returns and are often government-insured, offering a safety net that appeals to conservative investors, slightly overshadowing T-Bills' potentially higher but variable returns.

The New 1-Year T-Bill: Updates and Highlights

The new updates of the 1-Year T-Bill, designated as BY26102T has seen an increase of cut-off yield to 1.68%.

This yield, determined at auction, underscores the fluctuating nature of T-Bill interest rates, which are subject to monthly adjustments based on demand and broader economic factors.

The latest offering attracted a substantial S$13.4 billion in bids, exceeding the amount available, reflecting heightened investors interest when optimising their portfolios. 

This surge in demand, coupled with the competitive landscape of the auction process, resulted in the allocation of T-Bills at this lower yield, contrasting with the higher yields of past offerings.

StashAway Simple™ Cash: The Alternative Solution For Low-Risk Investment

For investors seeking a blend of competitive yield and low risk, StashAway Simple™ Cash emerges as a compelling alternative. This suite of products includes Simple Guaranteed, Simple, and Simple Plus, each offering tailored solutions to meet different financial needs.

StashAway Simple™ Fixed provides return of 1.05% p.a. for a one-month tenor.

StashAway Simple™ offers a projected 2.5% p.a. with ultra-low risk. There are no lock-ins, minimum deposits, or maximum limits, and your funds remain fully liquid, allowing withdrawals or transfers at any time.

For those seeking higher returns, StashAway Simple ™ Plus offers 4.7% p.a. YTM with the same flexibility—no lock-ins, earning caps, or restrictions on withdrawals. This makes it perfect for investors who want to maximize returns while still maintaining easy access to their cash.

Competitive Bid and Non-Competitive Bid: The Difference

As you consider expanding your investment portfolio with 1-year T-Bill, understanding the bidding process will become your next priority. Whether you're leaning towards a competitive or non-competitive bid, each choice influences the potential yield and the strategy behind securing these government-backed securities.

Let's delve into what these bidding options entail and how they could shape your investment outcomes.

Competitive Bids

Competitive bidding allows investors to specify their desired yield, targeting higher returns. This method suits those with precise yield objectives but carries the risk of not securing the T-Bills if the bid is below the market's clearing yield.

Non-Competitive Bids

Conversely, non-competitive bids offer a guaranteed way to acquire T-Bills, accepting the auction-determined yield. This approach simplifies the bidding process, prioritising the acquisition of securities over yield maximisation, which may result in a lower return.

Optimise Your Investment Portfolio With New T-Bill Options

1-Year T-Bill offer a unique opportunity for investors to enhance their portfolio's stability and yield in today's economic climate. As always, we encourage our readers to stay informed with StashAway’s blog guides for financial investment, carefully consider their investment choices, and leverage these new T-Bill options to achieve their financial goals.