From what I have estimated, it is highly likely that the Federal Reserve will hike the interest rate till about at least 5.25% and hold it till end of 2023. The interest rate hikes will inevitably plunge the US economy into a recession with high jobless rates and only then will the Fed be ready to cut rates.
It is very challenging
this time to stop the hikes in wages and the Fed has no choice but to bring in
a protracted and deep recession to tame the inflation.
Where can we get some
bargains at this time? Invest in T-bills if you still have some spare cash or
some idling funds in your CPF ordinary account.
Imagine mortgage
interest rates are currently around 4%, and you can get the cut-off yields at 4.4% from the result of the last auction of T-bills closed on 8 Dec 2022, your ROI can
match, if not better than, that of the commercial banks. And MAS is the one
issues the T-bills, so it is AAA rated and risk-free.
Some important points
in using your CPF OA to invest in T-bills:
1. Do leave $20k behind so that you can still
enjoy the 5% interest rate for this minimum amount in your CPF OA.
2. Do it in the first auction of the month as
the breakeven yield is about 2.92%, about 41 basis points more than that of
3.33% if you are to apply for the T-bills in the second auction of the month.
3. Go for competitive bid with a low-enough
rate (make sure it is higher than the breakeven yield) so that you can be allotted
all that you intend to invest in should there be an oversubscription for the
T-bills.
4. Remember to get your CDP account number
ready for filling in the form at the bank counter.
I invested the bulk of my CPF OA funds in the last auction of T-bills with the cut-off yield at 4.4%. I believe the money that will be returned to my CPF OA in mid-Jun 2023 will be ready to be reinvested at a much higher cut-off yield then.
Prescientsuperphang
http://superphang.blogspot.sg
Any intention to invest CPF Special Account Funds in Treasury bills for January first auction? For your information, using CPF Special Account Funds need to sign an additional form and the cut off date and time is at least 3 days before auction date at 12 pm. So it is wise to plan early and invest once the treasury bills are available for subscription at your CPF IS bank. It may make sense to invest using CPF SA funds in 6 months treasury bills and reinvest into a 1 year treasury bills at a higher yield in mid-Jul where cut-off yield may be at 4.65%. 6-month T-bill reinvest in Jul 2023 to a 12-month T-bill spanning total 19 months applied with SA: Breakeven Yield = 4% x 19 / 18 = 4.23%.
ReplyDeleteThanks for your advice. For using CPF SA funds to invest in 6-month T-bills, the breakeven yields are at 4.67% and 5.33% for the first and second auction of the month respectively. So, we will have to wait till the Fed raised the Fed Fund rates by at least another 50 basis points.
DeleteNevertheless, the extra that we can make compared to cash or CPF OA funds is not so attractive.
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