T Bills in Singapore
T bills (Treasury bills) are short-term debt securities issued by the Singapore government that mature in one year or less from their issue date.
The Monetary Authority of Singapore issue T-bills of 3-month and 1-year maturities.
Both Singaporeans and foreign residents can invest in treasury bills. There are also no restrictions to non-residents.
Historical yield of Singapore treasury bills
How T-bills work
Treasury bills are sold at a price less than their par value. When they mature, the issuer will pay the holder of the T-bill an amount equivalent to its par value.
T-bills don’t pay out interest. Instead, the interest is included in the price discount. Hence, the 'interest' earned on them is the difference between the purchase price and its par value.
Let's see how a T-Bill works in contrast to a fixed deposit.
1-year tenor example
If you place $1,000 in a 3% fixed deposit, you would collect $1030 at the end of the year. However, a 1-year treasury bills would be sold to you at $970 and you would collect $1,000 at maturity.
3-month tenor example
If you place $1,000 in a 3% fixed deposit, you would collect $1,007.50 at the end of the 3 months period. In contrast, a 3-month T bill would be sold to you at $992.50 and at maturity, you will collect $1,000.
You can sell your T-bills before maturity but the price will be subjected to market forces.
Difference between T-bills and SGS bonds
Their 2 main differences lie in the length of tenor and interest payments.
T-bills have tenors of 1 year or less while SGS bonds have tenors of 2 years and above, up to a maximum of 20 years.
Treasury bills are zero-coupon products because interest is paid off at maturity whereas SGS bonds make periodic interest payments to the bond holders.