Thursday, September 01, 2022

Singapore Treasury Bills from 1987-2022: Full Analysis

Singapore Treasury bills and bonds (T bills and bonds in short) continue to intrigue me as I studied the recent movements. Things started to get interesting around March 2022 when the US Fed started talking about hiking interest rates. The following table depicts our six month T bill movement - issue date and cut off yield, which is the yield we get when we subscribe, fortnite by fortnite (no gaming pun intended).

  • 20 Jan 0.48%
  • 3 Feb 0.69%
  • 17 Feb 0.76%
  • 3 Mar 0.78%
  • 17 Mar 0.95%
  • 31 Mar 1.22%
  • 13 Apr 1.32%
  • 27 Apr 1.56%
  • 11 May 1.69%
  • 26 May 1.8%
  • 9 Jun 2.04%
  • 23 Jun 2.36%
  • 7 Jul 2.66%
  • 21 Jul 2.93%
  • 4 Aug 2.87%
  • 18 Aug 2.98%
  • 1 Sep 2.99%
As of this writing, 6 month T bill pays 2.99%pa (1.49% over six months). This is risk free. Well, as long as Singapore stands, which I think she should for the next six months. I hope some of you subscribed as previewed in this post c.1 month ago! MAS also issues 1 year T bills but only on a quarterly basis and the latest cut off yields are as follow:
  • 13 Apr 2%
  • 21 Jul 3.1%

Singapore has one the highest home ownership in the world and as such I believe most of us reading this should have a mortgage. Given that mortgage rate is lower 2.99% (about 1.6-2.1% today), we should all draw out maximum mortgage and put into T bills, effective making free money! To illustrate this, if you can borrow at 2% and invest in this, using the 21 Jul 1 year T bill rate of 3.1%, you make 1.1% risk free with no equity. Let's use concrete no.s, say we can borrow $1m from the bank, which is not your capital since you borrowed it, then you buy the 1 year T bill and make 3.1%. After one year, you get back $1.031m, pay the bank $1.02m and voila you just made $11,000 with no capital outlay! 

Okay, you say there is duration mismatch. The mortgage can last 10, 20, 30 years, we cannot guarantee T bills will be at 3.1% for 10, 20, 30 years. The latest issue of our 10 year Gahmen bond has a cut off yield at 2.71% (see below). So technically, it is still doable. In fact, this also works if you can borrow at any kind of facility at 1-2%pa (ie lower than the cut off yield).

Now that we know this wonderful trick, the next relevant question would naturally be - so how much did our Singapore T bills yield over time? Here's the shocking conclusion. Read on. 

The MAS publishes all the data on T bills and bonds since 1987. Anyone can download all the data via the link below. The average 6 month T bill cut off yield has been 2.07% since 1987. While it has been mostly uninteresting at below 1% over the last decade or so, no thanks to QE, it did hit 3.05% in 2015 (and now 2.99%). In Jun 2000, right after the dot-com crash, it was 4.74%!

We spent 16 years discussing on this infosite about investing, taking risk and trying to make 8%pa. We all know someone, aunties or uncles, or even our own parents rushing to banks every few months to hunt for the highest fixed deposit rate and park money there to earn 1.x%pa. But since 1987, the Singapore government provided this ultimate instrument that can make on average 2%pa and in "good times" 3-4%pa. If you can borrow at 1+%pa which most of us could, we can make free money at infinity%pa. 

So, I am shutting down this infosite, thanks for reading folks! (Young Wonder Woman saying goodbye below)

Just kidding.

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