How does the T-bill auction work in Singapore — competitive vs non-competitive bid?

T-Bills Auction Mechanics in Singapore

Treasury Bills (T-bills) are short-term Singapore Government Securities (SGS) sold via auction, primarily used for short-term cash management. The auction process distinguishes between non-competitive and competitive bids.

Non-Competitive Bids

• Mechanism: Bidders specify only the total amount they wish to invest. They are guaranteed an allocation, provided the total demand does not exceed the allocated portion.
• Allocation: 40% of the total T-bills offered are reserved for non-competitive bidders.
• Yield: If demand exceeds the 40% allocation, the amount is pro-rated (reduced proportionally) among the bidders. All successful non-competitive bidders receive the same yield—the cut-off yield determined by the competitive bids.
• Example Insight: If you bid non-competitively for $10,000 and the allocation is oversubscribed, you might only receive $9,000 worth of T-bills, but you get the final cut-off yield.

Competitive Bids

• Mechanism: Bidders specify both the amount they want and the maximum yield they are willing to accept.
• Allocation: 60% of the T-bills are allocated to competitive bidders.
• Ranking and Cut-Off Yield: Bids are ranked from the lowest acceptable yield upwards. The cut-off yield is the yield of the last successful bid that fills the remaining 60% allocation.
• Yield Determination: Everyone who bid at or below this cut-off yield receives the T-bills at the cut-off yield rate. Bids submitted with a yield higher than the cut-off yield receive no allocation.
• Latest Yield Reference: The knowledge provided indicates a recent cut-off yield was 3.7%.

This system ensures that the government secures funding at the lowest possible cost while providing market transparency.