QUOTE(evangelion @ Sep 25 2024, 03:10 PM)
By your observation, did the old but with higher yield 6M T-Bill rise in price? How much did it rise and size of the volume?
Good question man!
Unfortunately, we retail investors can't profit from the rise in T-bill price in SG. We can only sell to the primary dealers DBS, UOB and OCBC, all of which charges a fee/spread of some 2% p.a.
So if you sell earlier, you will lose the returns on T-bills up front, not counting any capital appreciation...
SG's treasury market is not as liquid as US's treasury market. So, we retail investors usually hold the T-bills till maturity.
But that said, given the short duration of the 6M bill, the capital appreciation is negligible. If you want more capital gains from declining interest rates, you should go for longer duration bonds like 10- , 20- or 30-year issues for better bets on declining rates.
As for the size of volume, if you have access to Bloomberg you may be able to get better data. MAS only publishes turnover volume for longer tenure benchmark bonds, not short tenure ones:
https://eservices.mas.gov.sg/statistics/fda...overVolume.aspx» Click to show Spoiler - click again to hide... «
You can compute the capital appreciation using standard bond pricing formula either via duration (duration will do, for first order change, convexity is used for second order effect, which is negligible for < 1 year tenor zero-coupon bonds...) or discounting.
To quote one example, the last 6M T-bill I bid successfully was on 18th of July 2024: BS24106W (
https://www.mas.gov.sg/bonds-and-bills/auct...date=2024-07-23 ) has a cut-off yield of 3.64 p.a. with cut off price of 98.185. It will due next week on 21st Jan 2025 and the current 4-month risk free rate is, let's say somewhere between 12-week (3-month) MAS bill and 6-month T-bill, but closer to the 12-week bill.
6-month T-bill yields 3.03% p.a. from:
https://eservices.mas.gov.sg/statistics/fda...ssuePrices.aspx12-week MAS bill yields 3.18% p.a. from
https://eservices.mas.gov.sg/statistics/mas...ssuePrices.aspxWe now linearly-interpolate the yield curve to find a 4-month risk-free rate (in discount rate notation): (3.03-3.18)/(6-3) = (4M rate - 3.18)/(4-3) -> 4M rate = 3.13% p.a.
So today, the same bill will have a price of 100*(1-0.0313*(122/365)) = 98.954 today which is an increment of some 0.79% in 2 month's time. If the yield has stayed at 3.64% p.a., you will expect the price to be 98.783 today, so the price change due to the drop in interest rate is 98.954-98.783 = 0.2%
You can double check this answer with the duration formula for change in zero-coupon bond prices. The Macaulay duration for ZCB is its tenor/time to maturity which is 1/3 years (4 months) in our case here, the modified duration is (1/3)/(1+0.037) = 0.32 (3.7% is the effective rate, converted from 3.64% discount rate*). When the yield drops from 3.64 to 3.13 = 0.51% decline, the price appreciation = 0.51% * 0.32 = 0.16% (which is about the same as the 0.2% price change we found earlier).
*Yield and price calculation Reference:
https://williamlsilber.com/images/pdf/hando...easurybills.pdf*Note: SG treasuries are issued at par value of 1000 SGD (except SSB, which has a minimum subscription of 500 SGD) and follows ACT/365 convention (unlike the 30/360 convention used in US t-bill markets). After adjusting for these discrepancies, the formula remains the same.
*Conversion from discount rate to effective yield can be seen in this paper:
https://williamlsilber.com/images/pdf/hando...easurybills.pdf or the Excel spreadsheet attached
6_Month_SG_T_bill_calculator.zip ( 8.75k )
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Sep 25 2024, 03:10 PM
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