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Informist, Thursday, Feb. 20, 2025

MUMBAI – The Reserve Bank of India Thursday rejected all bids for the 91-day and 182-day Treasury bills at the weekly auction. This is the first time since Feb. 24, 2016, that the central bank has rejected all bids for 182-day T-bills. The RBI had last rejected all bids for the 91-day T-bills on Mar. 29, 2023.

The government planned to raise INR 140 billion through 91-day T-bills, INR 120 billion through 182-day T-bills and INR 70 billion through 364-day T-bills. The 364-day T-bill auction was fully subscribed. The issuance in the other two papers rose from the previous week in a scheduled increase announced in the Jan-Mar borrowing calendar, and the bond market likely demanded higher yields for the second straight week despite the cut in policy repo rate on Feb. 7.

"It looks to be a technical reason, that cut-off yields being demanded were too high. It doesn't look like a liquidity signal," a senior treasury official at a state-owned bank said. "Obviously, the government would have some comfort on cash to reject such a large amount of T-bills, but beyond that, I am not reading too much into it." According to an Emkay Global note from earlier this week, the government's cash balance was INR 1.0 trillion in the week ended Feb. 7.

From this week, the notified amount for T-bills has gone up to INR 330 billion from INR 280 billion. The weekly issuances of 91-day and 182-day bonds have increased, while the issuance of the 364-day T-bill has been reduced slightly. The higher quantum was partly the reason why bidding wasn't as aggressive, dealers said.

The demand from mutual funds at the auction was lacklustre, while banks demanded higher yields as goods and services tax outflows over the next few days are likely to drain around INR 1.5 trillion from banking system liquidity, dealers said.

Dealers said the unexpected outcome of the auction was also because traders were primarily focused on bidding at the open market operation auction held by the RBI at the same time to buy INR 400 billion worth of gilts. The T-bill auction was shifted to Thursday as money markets were shut on Wednesday for Chhatrapati Shivaji Maharaj Jayanti. "Because everyone was busy with OMO, no one bid competitively for T-bills, that's the rumour going around in the market... that's what I feel also," a dealer at a private bank said. 

Despite the repo rate cut earlier this month, cut-off yields on short-term government debt have risen as the liquidity deficit is seen widening to as high as INR 3 trillion in the next few weeks due to the GST outflows, as well as payments for advance tax in mid-March, dealers said.

Meanwhile, the RBI's dollar sales are also likely to continue draining liquidity, and scheduled inflows are not substantial. This may pose a dilemma for the government – whether to continue borrowing at higher rates or trim its just-increased supply of Treasury bills.

A smoother pattern for the RBI or the government to signal relief would be to modify the T-bill borrowing calendar for Jan-Mar, rather than cutting down issuances ad-hoc, dealers said. The Centre had cut its T-bill borrowing in both Apr-Jun and Jul-Sept as its cash pile had ballooned following a lack of spending opportunities due to the General Elections.

As of now, traders do not see T-bill supply falling substantially because the government would need the funds at the end of the financial year when its spending traditionally ramps up, dealers said.

Bond prices were unchanged after the T-bill auction results. However, the 91-day T-bills of comparable maturity were last traded in the secondary market at 6.39%, down from 6.43% at open.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Cassandra Carvalho

Edited by Saji George Titus

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