Higher Interest Rates for Government-issued Treasury Bills

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.

My response to Parliamentary Question No 11 filed by Mr Leong Mun Wai will also address his Written Parliamentary Question No 1 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.