You will be able to describe how a T-bill auction works and why every successful bidder gets the same yield.
Open the MAS website and find the auction calendar for Singapore Government Securities. Keep it open while you read. You will use the dates on it, and the results published beside it, before any bid you place.
T-bills and SGS bonds are not sold over the counter at a fixed price. They are sold at auctions, which MAS runs on behalf of the Government on a schedule it publishes in advance. Once you know how those auctions work, you can see what your bid does and what it doesn't do.
Each issue on the MAS calendar has three dates. On the announcement date, MAS confirms the issue and how much it will sell. On the auction date, bids are collected and the price is set. On the issue date, the bills or bonds are created, your money is used, and your holding period starts.
Your bank works to an earlier deadline. It closes its own window before the auction, often a day or more before, so it has time to pass customers' bids on to MAS. Each bank shows its closing time on its T-bill page, and the time can differ by funding source, for example cash or CPF money. If you miss your bank's closing time, you wait for the next auction, even if the auction date itself hasn't arrived.
There are two kinds of bid. A non-competitive bid accepts whatever yield the auction sets. These bids are filled first, up to a share of the issue that MAS sets. A competitive bid names the lowest yield the bidder will accept. Lesson 4.3 compares the two in detail.
After the non-competitive share is filled, MAS ranks the competitive bids from the lowest yield to the highest. The lowest-yield bids are filled first because they are the cheapest money for the Government. MAS works up the list, filling bids in turn, until the amount on offer is used up. The yield on the last bid filled is the cut-off yield. Bids below the cut-off are filled in full. Bids exactly at the cut-off may be filled only in part, if not enough remains to cover all of them. Bids above the cut-off get nothing, and that money is returned to the bidders.
Take an auction with an issue size of S$100 million. All the figures here are invented for the example. Non-competitive bids come to S$30 million and are filled first, which leaves S$70 million (S$100 million - S$30 million) for competitive bids. The competitive bids are:
S$20 million at 3.00% S$25 million at 3.05% S$30 million at 3.10% S$40 million at 3.15%
The first two groups, at 3.00% and 3.05%, take S$45 million (S$20 million + S$25 million). That leaves S$25 million (S$70 million - S$45 million). The bids at 3.10% ask for S$30 million, which is more than the S$25 million left, so they share the S$25 million and each is filled at about 83% of its amount. The cut-off yield is 3.10%. The bids at 3.15% receive nothing. Every bidder who was allotted bills receives 3.10%: the non-competitive bidders, the bidders at 3.00% and 3.05%, and the partly filled bidders at 3.10%.
Arjun and his colleague Mei both bid for the same six-month T-bill. Arjun didn't type a yield, so his was a non-competitive bid. Mei typed 3.00%, which made hers a competitive bid. When the results came out, they received exactly the same yield, and it was higher than 3.00%. Mei assumed the bank had made an error in her favour. It hadn't. Her 3.00% meant she would accept anything from 3.00% up, and because the cut-off came out higher, she was paid the higher rate.
SGS auctions are a uniform-price auction: everyone allotted bills in an issue receives one yield, and so pays one price. The yield on a competitive bid is the minimum you will accept. You are paid the cut-off. Bidding a low yield doesn't give you a worse deal, because you receive the cut-off whatever you bid. A low bid only improves your chance of being filled. The design gives bidders a reason to bid honestly, because the yield you name decides whether you are filled and has no effect on what you are paid. The sensible bid is the lowest yield you would really accept.
After every auction, MAS publishes the results: the cut-off yield, the amount offered, the amount allotted, and how heavily the issue was bid. The T-bill results go back years, and they are the most useful thing to check before you bid.
They show the range that recent cut-offs have fallen in and how much the cut-off moves from one auction to the next. They also show when demand has been heavy, which tells you how likely a non-competitive bid is to be filled in full. They don't predict where the next cut-off will land. Yields move with the wider rate market, which is covered in How the economy hits your wallet: rates, inflation and cycles.
Arjun looked up the last few six-month auctions and saw that the cut-off had moved only a little each time. That made it easier for him to choose a bid type, which the next lesson covers.
Before your own bid, check the range and movement of recent cut-offs and how heavily recent issues were bid. Then find the next auction date on the MAS calendar, and find your bank's closing time for that auction and your funding source on its T-bill page. Look up the same results Arjun did, then note the next auction date and your bank's closing time for it.
Find the last three cut-off yields for the six-month T-bill on the MAS website and write down the next auction date and closing time for your bank.
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