[SINGAPORE] With the US Federal Reserve’s rate hike on Wednesday (Sep 16), a question has emerged among some investors: will Treasury bills (T-bills) make a comeback?

The Fed upped its rates this week to a range of 3.75 to 4 per cent amid stubborn inflation – its first hike since July 2023. It also signalled another hike could follow before the year ends.

Analysts have mixed views on how this will affect yields and demand for Singapore T-bills.

T-bills are short-term – six-month and one-year tenors – Singapore Government Securities issued at a discount to their face value. Investors receive the full face value at maturity.

Their yields have slumped below 2 per cent from July last year and have hovered around 1.5 per cent for a significant part of 2026.

An “insurance” hike

Francis Tan, chief strategist (Asia) at IndoSuez Wealth Management, told The Business Times that the Fed’s interest rate decision is an “insurance hike” – and not a larger hiking cycle per se.

This means assets tied to higher short-term rates, cash yield or floating coupons tend to benefit, while assets whose value depends on long-dated earnings or cheap funding come under pressure.

Examples of instruments that could gain from the recent hike include:

• Money market funds
• Short-duration Treasury funds
• Short-duration investment-grade credit

Therefore, the outlook for T-bills and other Singapore government bonds is mixed as their fate depends on their duration length.

“Short-duration Singapore dollar cash and T-bills are relatively supported, but long-duration bonds are under pressure if global yields rise,” added Tan.

Amid such a “calibrated” hike cycle, Eugene Leow, head of fixed income research at DBS, said this upward pressure on T-bill yields is unlikely to be “anywhere close to what was seen in 2023”.

In December 2022, T-bill six-month yields hit a 30-year high of 4.4 per cent, and mostly hovered around the 3.7 to 3.8 per cent range in 2023 during the higher-for-longer interest-rate environment then.

Leow sees the Fed hiking rates to 4.5 per cent by early 2027. Therefore, T-bill yields could possibly move to near 2 per cent, he said.

“The key issue for investors is whether this rate clears the hurdle and will start attracting monies again.”

Currency impact

Tan said the Singdollar could weaken after a Fed rate hike. However, it tends to be more resilient and “well-insulated”, compared with other Asian currencies.

“This is because we are different from most regional foreign exchange (FX) markets, since the Monetary Authority of Singapore manages the Singdollar against a trade-weighted basket, rather than targeting interest rates in the same way as the Fed,” he said.

Daily Singapore Overnight Rate Average (Sora) levels also depend on the prevailing domestic liquidity condition on the day itself, said Frances Cheung, head of FX and rates strategy at OCBC.

This means the rate often has “little direct correlation” with US dollar rates, she added.

“Our view remains for the Sora to edge higher towards the 1.4 per cent level by year-end.”

Other assets to consider

Cheung is of the view that further upside to US dollar rates and yields “may not be huge”, particularly in a hawkish market set to price more hikes by mid-2027.

This comes as US Treasury yields have already risen to “multi-year highs” ahead of Wednesday's hike, various global reports said.

Industry watchers commented on how the impact this time around had been priced in for a while, such that broader Asia markets still opened mostly higher a day after the decision.

The cut-off yield from the Aug 29 six-month T-bill auction ticked up from 1.6 per cent to 1.7 per cent as at Sep 10.

Tan is optimistic about energy equities and other inflation-linked assets – such as exchange-traded funds and commodity producers – at this point.

“Industrials and select plays in cyclicals with strong margins and companies with pricing power and low leverage tend to perform well too, as these are less sensitive to discount-rate compression than long-duration growth,” he said.

On the other hand, housing and interest-sensitive consumers face pressure, as much of their money flows through to mortgage, consumer credit and business borrowing costs.

This affects homebuilders, mortgage real estate investment trusts, cars and big-ticket discretionary, highly leveraged consumer names, Tan noted.

Experts are mixed on precious metals such as gold and silver at this point in time. While Tan said gold traditionally goes down amid a rate hike, others are not immediately bearish on the commodity.

“We continue to prefer gold over government bonds as a defensive allocation amid elevated public debt and persistent fiscal deficits. Continued central-bank buying provides additional support for our constructive view on the asset,” said Justin Jimenez, head of macro and investment research at digital wealth manager StashAway.

Additional reporting by Deon Loke