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Informist, Wednesday, Dec. 4, 2024

--RBI sets 91-day T-bill cut-off yield at 6.4287%, lowest since Jan 18, 2023
--RBI sets 182-day T-bill cut-off yld at 6.5386%, lowest since Sept 21, 2022

By Cassandra Carvalho

MUMBAI – The Reserve Bank of India set a cut-off yield of 6.5386% on the 182-day Treasury bill, an over 26-month low, at the auction Wednesday, as traders bet on a rate cut by the Monetary Policy Committee on Friday, dealers said. The 91-day T-bill also saw its lowest cut-off since Jan. 18, 2023 at 6.4287%.

The 364-day T-bill cut-off yield was set at 6.5295%, a shade above the Oct. 9 cut-off, which was the lowest since September 2022. The cut-off on the 91-day T-bill set Wednesday was in line with estimates in an Informist poll, while those on the other two were marginally lower.

Cut-off yields on treasury bills at the auction fell 6-12 basis points from a week ago. In the interim, India's disappointing Jul-Sept GDP growth has stoked market hopes of rate cuts starting as early as the MPC outcome on Friday. The three-day MPC meeting began Wednesday. Traders placed aggressive bids at the auction to account for a potential 25-bps repo rate cut this week, dealers said.

"This week T-bill auction witnessed a notable decline in cut-off yields as market participants priced in the RBI's easing monetary conditions, potentially through a cut in the cash reserve ratio or other measures aimed at infusing durable liquidity," V.R.C. Reddy, head of treasury at Karur Vysya Bank, said. "Additionally, the probability of a rate cut has intensified and gained traction in the wake of the Jul-Sept GDP growth rate falling sharper than anticipated."

Short-term debt instruments like T-bills are especially sensitive to easier liquidity conditions, as banks and mutual funds typically park their surpluses in these instruments. Liquidity in the banking system fell into deficit last week, and on Tuesday was in a surplus of INR 1.00 trillion.

"The expected easing of liquidity conditions, coupled with market expectations of an early rate cut, is poised to result in a steepening of the yield curve, with the short end of the curve likely to benefit the most," Reddy said.

In addition to hopes on policy easing, mutual funds are also flush with cash at the beginning of the month with investors parking their funds into liquid schemes, dealers said. Kotak Mutual Fund expects the RBI to cut its cash reserve ratio by 50 bps and the repo rate by 25 bps on Friday, Chief Investment Officer - Fixed Income Deepak Agrawal said Wednesday. Similar optimism across the market led to only seven competitive bids mopping up the INR 60-billion on offer of the 182-day T-bill.

"The secondary (gilts) market was at similar levels (as the T-bill auction cut-offs)," a trader at a primary dealership said. "The (T-bill) auction was aggressively bid and well-bid."

The T-bill cut-off rates moved in tandem with overnight swap rates and gilt yields, which have been on a downward trajectory this week. The 10-year benchmark 6.79%, 2034 gilt has fallen by around 13 bps since last Wednesday, as market participants are bracing for monetary policy easing or liquidity support measures, or both. Overnight indexed swap rates have also fallen by around 20 bps in the past week. The one-year swap rate, a bellwether of domestic rate cut expectations, hit an over two-year low of 6.30% on Monday, indicating that nearly 50 bps of repo rate cuts have been priced in by the MPC meeting in February.  End

Edited by Ashish Shirke

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