No 3.13% 6-Month Treasury Bills is Not Low… and You May Also Have a Bigger Problem.

The 6-month Singapore Treasury Bill auction reveals a cut-off yield of 3.13%.

This is the third Tbill issue where the rates were lower consecutively if my memory serves me well still.

I have this acquaintance.

During the last second issue, he would message me:

“T-Bills dropped to 3.34%, very low. Might as well leave in OA.”

Then, after the next one:

“T-Bills dropped very low 3.13, nor worth investing.”

I look at things like this, and I point to one big problem.

But before I talk about this problem, let’s talk about a yield of 3.13% being low.

I took this chart from my post about Singapore Savings Bonds and it shows the progression of the yield of the 6-month Treasury Bills.

Maybe you try to reflect upon that 3.13% after looking at this chart. Is that low?

Or do you prefer 0.49%?

My acquaintance has his eye only on the Tbills to invest his CPF OA perhaps. And that would mean there is a minimum cut-off yield that is attractive.

But man.. don’t keep telling me 3.13% is a low yield basket.

If we look at that chart, maybe we should at least celebrate a 6-month tenor, near risk-free instrument is STILL at 3%.

What I See as a Bigger Problem

I look at my acquaintance and I see someone who is short of options.

It cannot be healthy that we are following the yield of 6-month Treasury Bills so closely.

In the past, I do see readers consulting me whenever the REIT market is in distress and I think this is normal.

But you got to detect whether you feel a sense of “fear” because things are not going according to plan and you felt that you have “lost control” and that this will affect your financial plan in a very bad way.

All asset class and securities have their seasons of doing better and not doing so well.

The following pyramid is a pyramid of the returns of US 1-month Treasury Bills that is extracted from Dimensional’s Return Matrix Book 2024:

You can view a larger image over here but if you flip to page 34, you can see the full pyramid from 1926 to 2023.

The first cell of each column shows the actual calendar year return of a very short term 1-month US Treasury bills. What you will notice is that the returns can range from 0% to 8.8%.

Now, if you flip through the Matrix book, you will see that the returns are not too different from the 1-month Treasury bill.

They explain that returns are just going to be uncertain and what we need to do better is to craft a strategy to harness that uncertainty within the life that we live. That is wealth planning in its essence.

I think we should all recognize that within this system, uncertainty is the constant, be it the return, whether companies or entity boom or bust and we should not be too surprised by it.

Treasury bills are meant more for shorter term liquidity. It is easier for people to understand.

But most of us should learn about what we can use if our investing time horizon is longer.

For example, the three CPF funds that I introduced not too long ago with Dimensional is pretty sound if your tenor is longer.

In particular, I thought the Global Core Fixed Income III fund is suitable for the risk averse if they have at least a 6-8 years tenor.

The pyramid below shows the annualized return of the Global Aggregate Bond Index:

The deeper you go each column, it shows the annualized return if you hold that long. For example, if you look at 2002, to 2007, the number is 4.9 which represents 4.9% p.a.

This means that if you invest from 2002 to 2007 for five years, the annualized return is 4.9% p.a.

The aggregate bond is damn gosu in that it doesn’t bleed really due to the nature of the bond. In 2022, we suffer the equivalent of a Great Depression in bonds, and the worse return is a mere -11.2%.

You can purchase the three funds at Endowus (my affiliate link here)

The most significant problem of being very focus on something good is that you don’t spend time building up know-how about the alternatives.

If there are seasons for each kind of investment securities, then you create your own prison while your peers are just shopping from one Grocery stall to another.

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