The Fed hiked rates for the first time since 2023. Will T-bills make a comeback?

The US Federal Reserve raised its key interest rate for the first time since July 2023, signalling a potential upward trend before the year's end. This decision has raised questions about the future of Treasury bills (T-bills) in the market. T-bills are short-term securities issued by the Singapore Government at a discount to their face value, with investors receiving the full face value upon maturity.

Analysts are divided on the impact of this rate hike on T-bill yields and demand. Francis Tan, chief strategist at IndoSuez Wealth Management, suggests the Fed's decision is more of an "insurance hike" rather than a larger cycle of rate hikes. He believes that short-duration Singapore dollar cash and T-bills may receive support, while long-duration bonds could face pressure if global yields continue to rise.

Eugene Leow, head of fixed income research at DBS, expects T-bill yields to potentially move closer to 2 per cent by early 2027. However, he notes that the key question for investors is whether the rate hike will attract more funds to T-bills.

The Singapore Dollar, managed by the Monetary Authority of Singapore against a trade-weighted basket, tends to be more resilient compared to other Asian currencies. Frances Cheung, head of FX and rates strategy at OCBC, anticipates the Singdollar to edge higher towards the 1.4 per cent level by year-end.

Despite the Fed hike, global markets mostly opened higher the next day, indicating that the impact of this decision may have already been priced in. Tan remains optimistic about energy equities, inflation-linked assets, and industrials. However, housing and interest-sensitive consumer sectors may face pressure due to the impact on borrowing costs.