Fed rate hike: Will T-bills make a comeback?

With the US Federal Reserve's rate hike on September 16, concerns have surfaced among investors regarding the potential resurgence of Treasury bills (T-bills). The Fed raised rates to a range of 3.75 to 4 percent, marking the first increase since July 2023. Analysts hold varying opinions on how this will influence yields and demand for Singapore T-bills.

T-bills are short-term government securities issued at a discount, offering a full face value upon maturity. Their yields have plummeted below 2 percent, hovering around 1.5 percent since mid-2026. Francis Tan, IndoSuez Wealth Management's chief strategist (Asia), suggests the Fed's action is an "insurance hike," not indicative of a broader rate hiking cycle.

This means assets tied to higher short-term rates or floating coupons may benefit, while those reliant on long-dated earnings or cheap funding may suffer. The outlook for T-bills and other Singapore government bonds is mixed, with short-duration Singapore dollar cash and T-bills supported, but long-duration bonds potentially pressured if global yields rise.

Eugene Leow, head of fixed income research at DBS, anticipates T-bill yields to near 2 percent by early 2027, as the Fed could raise rates to 4.5 percent by then. The Singdollar's resilience, due to Singapore's distinct currency management approach, might counterbalance the impact of a Fed rate hike. However, further upside in US dollar rates and yields may not be substantial, especially in a market anticipating more rate hikes by mid-2027.

T-bill yields have already risen to multi-year highs ahead of the Fed's decision, with industry watchers noting that the impact has been expected for some time.