Diversifying Your Investment Porfolio With 1-Year T-Bills

01 April 2024

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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 pros and cons 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.

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

The distinction between 6-month and 1-year T-Bill lies in their maturity periods and the corresponding yield expectations. Generally, 1-year T-Bill might offer higher yields to compensate for the longer exposure to interest rate risks, making them an attractive option for investors looking for slightly longer short-term investments that potentially provide better returns. 

On the other hand, 6-month T-Bill cater to those seeking quicker liquidity and may prefer the flexibility to reinvest more frequently, adapting to the changing interest rates and economic conditions. The choice between the two often depends on your risk tolerance, investment horizon, and market outlook. But with 1-year T-Bill showing relatively consistent yields, a low-risk investment with longer maturity might be worth finessing into your financial portfolio.

6-Month T-Bill1-Year T-Bill
Maturity Period6 Months1 Year
IssuanceBiweekly (Once every 2 weeks)Quarterly (Once every 3 months)
Better Suited ForShort-term investmentsLong-term investments

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.

1-Year T-BillSavings Accounts
Maturity Period1 yearNIL
Interest RatesLocked-in on purchaseSubject to change
Ease of Access to FundsCannot withdraw a portion of your deposit. However, you can sell your T-Bill on the secondary market before maturityAccess your funds at any time
Suited ForLong-term investment plansFlexible investment plans

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.

1-Year T-Bill12-months Fixed Deposit
Interest Rates3.58%average 2.95% - 3.30%
Minimum Deposit (for the most competitive interest rate)S$1,000From as low as S$500
Ease of Access to FundsCannot withdraw a portion of your deposit. However, you can sell your T-Bill on the secondary market before maturityEarly withdrawal penalties apply
Better Suited ForLong-term investment plansLong-term investment plans

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

The new updates of the 1-Year T-Bill, designated as BY24101X has seen an increase of cut-off yield to 3.58%, a slight increase from the previous rates. 

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$14.4 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™ Guaranteed: The Alternative Solution For Low-Risk Investment

For investors seeking a blend of competitive yield and low risk, StashAway Simple™ Guaranteed emerges as a compelling alternative. With its guaranteed 3.7% p.a. return, no investment caps, and absence of fees, it streamlines investment for those prioritizing ease and certainty. 

StashAway’s straightforward approach, leveraging an app for portfolio management, aligns with modern expectations for accessibility and efficiency, making it a noteworthy option for conservative investors looking to optimise their returns without exposure to significant volatility.

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.

AspectCompetitive BidsNon-Competitive Bids
Yield SpecificationYes, investors specify desired fieldNo, accepts auction-determined yield
Allocation RiskRisk of not securing T-Bills if bid is too lowGuaranteed allocation of T-Bills
SuitabilitySuitable for those targeting specific returnsSuitable for investors prioritising security purchases in their portfolios

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.

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