Higher Interest Rates for Government-issued Treasury Bills
Prime Minister's OfficeSpeakers
Summary
This question concerns Mr Leong Mun Wai’s inquiry into why Treasury bill (T-bill) yields exceed commercial bank fixed deposit rates. Deputy Prime Minister Lawrence Wong explained that T-bill yields are set by competitive auctions reflecting global market directions and central bank rate hikes, whereas fixed deposit rates depend on bank funding needs and competition. He noted that retail investor demand for T-bills grew to 46% in 2024, aided by the digitization of the CPFIS-OA application process. While major banks offer fixed deposit rates up to 3.5%, recent T-bill auctions yielded up to 3.66% due to pressures in global markets like US Treasuries. These varying rates reflect how government securities respond to international interest rate environments, while commercial rates are influenced by domestic loan demand and deposit growth.
Transcript
11 Mr Leong Mun Wai asked the Prime Minister what are the main reasons for the six-month and one-year Treasury bills issued by the Government to bear higher interest rates than fixed deposits of the same respective maturity offered by commercial banks.
Mr Lawrence Wong (for the Prime Minister): My response to Parliamentary Question No 11 filed by Mr Leong Mun Wai will also address his Written Parliamentary Question No 11 in today's Order Paper. [Please refer to "Treasury Bills Allotted to Retail Investors and Steps to Promote this Investment Instrument Among Them", Official Report, 27 February 2024, Vol 95, Issue 125, Written Answers to Questions section.]
The yields on Treasury bills (T-bills) are determined via competitive auctions in a market that comprises individuals and institutions from Singapore and overseas. They therefore reflect the general level and direction of interest rates in global markets. Over the past two years, yields on T-bills have increased alongside comparable instruments, such as US Treasuries, as central banks globally raised interest rates to combat inflationary pressures. As T-bill yields increased, retail investor demand has also strengthened. Allotments to retail investors have grown from around 13% of each issuance in 2022 to around 46% of each issuance in 2024.
Retail investors can subscribe to Singapore Government Securities (SGS), including T-bills through local banks' physical automated teller machines (ATMs) and online banking channels. In 2023, the Monetary Authority of Singapore (MAS) and the Central Provident Fund (CPF) Board worked with agent banks to digitise the CPF Investment Scheme-Ordinary Account (CPFIS-OA) application process. This has made it significantly easier for retail investors to participate in T-bills auctions using their CPF-OA balances.
Fixed Deposit (FD) interest rates are determined by the funding needs of banks, competition in the market and deposit growth relative to loan demand. Indeed, FD rates have increased over the past two years, alongside higher demand for T-bills. Based on published information from the major retail banks, depositors can earn interest of up to 3.0% and 3.5% on six-month and 12-month FDs. This compares with the 3.66% and 3.45% yield for the most recent auction of T-bills of similar tenors.