Disclaimer: This post is just for educational sharing purposes. Please do your own due diligence on any products mentioned in this post.
I wrote a blog post on the Projection of T-Bills Cut-Off Yield in November 2022. In that article, I introduced 2 methods of yield projection:
MAS Bills to T-Bills Projection
Linear Trendline Projection
Let’s take a look at how these 2 methods are doing with the T-bills auction results up till this month.
MAS Bills to T-Bills Projection
In the blog post on 6-Month T-Bill Auction Trend in 2022 and 2023, I have already presented the T-Bill vs MAS Bill Yield Chart and the T-Bill Yield Premium Statistics in 2022 and 2023. Here is an updated chart and table including the January 2024 T-Bill and MAS Bill auction results:
This method of projection should continue to work as it was capturing the deviations due to retail investors’ biddings on T-Bills from the institutions’ biddings on the immediately preceding MAS Bills.
The advantage of this method of projection is that the actual yield should be quite close to the projected yield as the institutions’ bids is likely to be stable across the 2 bills happening within 2 days. The disadvantage is that the projection is limited to the next T-bill issue, and not able to project yields for subsequent T-bill issues until the corresponding MAS bills auction results are released.
Trendline Projection
The trendline projection method can project further into future T-bill issues, but the further it is, the less predictive it will probably be.
The Linear Trendline Projection worked reasonably well in 2022, but it would have failed in 2023 as the yield no longer went through a linearly increasing trajectory, but instead flatten in a narrow range. We need to change the trendline projection method from linear to higher order.
By experimenting with various trendline options in Excel, I found that the 3rd Order Polynomial Trendline Projection seems to work quite well from 2022 to January 2024.
Based on this trendline projection, the 6-Month T-Bill Cut-Off Yield might hover around 3.50% to 4.00% in 2024. This might change when US Federal Reserve pivots to rate easing. The current CME FedWatch Tool (as of 22 January 2024) is showing high probability of rate easing starting from May 2024:
I shall update the polynomial trendline projection chart to see how well this method turns out to be in subsequent months till end of the year.
Disclaimer: This post is just for educational sharing purposes. Please do your own due diligence on any products mentioned in this post.
Performance Update
Here is the December 2023 Performance Update:
All the 5 robo advisor portfolios and the 3 benchmark indices continued the rebound from last month. This round MoneyOwl portfolio took the top spot in terms of monthly return, and the worst is StashAway portfolio. For the indices, MSCI World Index took the lead with S&P 500 the last in monthly return.
In terms of XIRR since inception, both Syfe and MoneyOwl portfolios have turned from negative to positive, and the best and worst are Endowus and SquirrelSave respectively.
Key Observations
All 5 robo advisors and 3 benchmark indices continued the rebound in December 2023.
Endowus portfolio remained the top performer in YTD return and XIRR since inception among robo advisors.
MoneyOwl portfolio took the lead in monthly return in December 2023, while StashAway portfolio was the worst performer.
Both Syfe and MoneyOwl portfolios have turned from negative to positive in XIRR since inception.
After 3 full years of experiment (excluding MoneyOwl and SquirrelSave portfolios which were added in April 2022), it seems like the robo advisor portfolios couldn’t gain an edge over the benchmark indices based on XIRR since inception.
Do take note that the last 6-month T-bill listed in the 2023 calendar is technically the first 6-month T-bill (BS24100F) in 2024 as both its auction and issue dates are in January 2024. It is listed in the 2023 calendar simply because of the announcement date is in 2023.
Now that the 2023 T-bill issues are closed, I thought it is a good time to do a year-end review on the T-bill auction trend in the past 2 years. And I just realized that the last time I wrote about T-bill in this blog was in December 2022, that was more than 1 year ago.
6-Month T-Bill Yield
We can see that the cut-off yield had risen from about 0.5% in January 2022 to the peak at 4.4% in December 2022. After that the cut-off yield had dropped but maintained within a band of 3.7% to 4.2% in 2023.
The median and average yields are the 2 lines below the cut-off yield line. The 3 lines are pretty close to each other during the first half of 2022, but the spreads became wider (especially average yield from cut-off yield) when cut-off yield increased to 3% and above from second half of 2022 onwards.
The main players that anchor the cut-off yields in T-bills are the financial institutions, who would likely submit bids rationally based on their money supply situation. When the yield increased to 3%, T-bills began to attract attention from the retail investors.
These group of incoming retail investors were mostly newbies and likely had no idea on how to bid and what yield to bid. They would either submit non-competitive bids, or submit lower competitive bids to undercut the institutions if they wanted to secure the T-bills. I believe the widening of yield spread is caused by the influx of the inexperienced retail investors.
Another observation is that the average yield is lower than the median yield. As median yield is the middle yield of the ascending list of successful competitive bids, for average yield to be lower means that the the lower half of successful bids are weighted more heavily towards below-average yields, what one might call the low-ballers. Again I believe this is primarily due to the inexperienced retail investors.
6-Month T-Bill Application & Allotment Amount
The top line is the total amount applied for 6-month T-bills in 2022 and 2023. The next 2 lines below are the amount allotted to the competitive and non-competitive applications respectively. It means that the sum of the bottom 2 lines is the total amount allotted to successful applicants.
We can see that the total amount applied is approximately double the total amount allotted, meaning the Bid-to-Cover Ratio is approximately 2.0, or about 2x oversubscription in layman terms.
If we look at first half of 2023, the non-competitive bids are virtually zero, again pointing to the institutions are participating only in competitive bids. This is to be expected because institutions want to have control over the desired yields they could be getting. They won’t submit non-competitive bids leaving their fates to other players.
6-Month T-Bill vs 12-Week MAS Bill
In a blog post I wrote in November 2022 on the subject of Projection of T-Bills Cut-Off Yield, I presented 2 methods of T-bill yield projection.
The first method is using the preceding 12-week MAS Bill auction results to forecast the cut-off yield of the 6-month T-bill.
We can observe from the above chart that the 6-Month T-Bill cut-off yield was above the 12-Week MAS Bill cut-off yield for most part of 2022, but it went below from November 2022 onwards. This suggests that it were the retail investors who pulled down the T-bill cut-off yield to below the institution-only MAS Bill cut-off yield.
T-Bill Yield Premium Statistics
The following table shows some statistics on the T-Bill Yield Premium (%) over the preceding MAS Bill Yield:
The T-Bill Yield Premium over preceding MAS Bill ranges from 0.33% (T-Bill yield 33 basis points over MAS Bill yield) to -0.60% (T-Bill 60 basis points under MAS Bill) in both 2022 and 2023. This range happened in 2022 alone, and the range for 2023 had narrowed to 0.01% and -0.40%.
The -0.60% yield premium specifically happened in both November 2022 auction issues, the only 2 issues in 2022 with partial allotment to non-competitive bids. Take note that the immediate preceding T-bill (BS22121F) cut-off yield was 4.19%, the first time cut-off yield crossed 4% in 2022. Goes to show that the increasing interest in T-bills from retail investors resulted in oversubscription in non-competitive bids and pulled down the cut-off yield in the auction results, resulting in wider negative T-bill premium.
The average yield premium has turned from positive (+0.02%) in 2022 to negative (-0.21%) in 2023. Again showing the pull-down effect on cut-off yield by the retail investors in 2023.
With a standard deviation of 21 basis points for the 2 years, there is a 68% chance of T-Bill Yield Premium ranging between -0.31% and 0.11%. For example, if the preceding MAS Bill cut-off yield is 4%, then statistically 68% chance the T-Bill cut-off yield can fall between 3.69% and 4.11%.
Disclaimer: This post is just for educational sharing purposes. Please do your own due diligence on any products mentioned in this post.
LUNA 2.0 Airdrop Update – December 2023
I receive the LUNA 2.0 airdrop on 9 December 2023 as expected.
Performance Update
Here are the charts of the 4 crypto coins in my portfolio as of end December 2023:
In December 2023, the upwards momentum continued:
BTC broke and stayed above the resistance-turns-support line at 42000.
ETH moved up and tested the resistance line at 2400, retraced a little preparing for the next thrust up.
SOL broke above the resistance-turns-support line at 80, rallied quickly to test the next resistance line at 120.
Even LUNA2 wasn’t too shabby, it went up to above 1.00 before retreating to rest on its Ichimoku Cloud.
Overall the signs seem to be indicating a continuing upwards movement in the new year. I am happy to see how this bullish sentiment has pushed up my crypto portfolio as of 31 December 2023:
My crypto portfolio allocation has reached 6.09%, about +30% up from last month 4.65%. The XIRR since inception has trippled to 24.52% from last month 8.01%. It is in a much better shape to kick start the new year.
May the crypto investors enjoy a bountiful harvest ahead!
Personal Wealth Life Cycle Management (PWLCM) 