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Informist, Tuesday, Jun. 9, 2026

 

By Janwee Prajapati

 

MUMBAI – Wednesday's Treasury bill auction could see a change of pace from the recent trend of skittish bidding. With the Reserve Bank of India's Monetary Policy Committee holding the policy repo rate at 5.25% and keeping its policy stance at 'neutral', investors should have more confidence in bidding for the short-term debt instruments, bond dealers said.

 

Treasury bill cut-off yields at auction had begun rising in the recent weeks heading into the policy decision, with some sections of the market pricing in a 50-basis-point rate hike by the MPC in June in response to rising inflationary pressures. The war in West Asia and closure of the Strait of Hormuz have led to tightening global supply chains, percolating to higher wholesale and retail inflation in India in recent months.

 

The immediate decision, however, came as relief. This is likely to bring down the cut-off yield on the 91-day T-bill lower than last week's 5.56%, dealers said. The RBI raised its inflation forecast for financial year 2026-27 (Apr-Mar) by 50 basis points to 5.1% at the policy meeting, seen necessitating a repo rate hike by the MPC later in the year. Consequently, the fall in cut-off yields on longer-term T-bills may be lower, they said. 

 

"There was a fear of a rate hike (in June) in the market which had pulled up the bidding rates," a dealer at a state-owned bank said. "But tomorrow (Wednesday), you see the spread (between the cut-off yield over the weighted average yield) will come down again to nearly 1-2 basis points." 

 

Traders have been tracking the spread between the cut-off yield, where the last bidder gets the supply, and the weighted average yield at auction to gauge the aversion of investors such as mutual funds to park cash in the instrument. These flashed a warning signal by the end of May. This spread for the 91-day T-bill was over 3 bps at the May 27 auction and that for the 182-day T-bill rose to 6 bps, both the highest in over a year. The spread between the cut-off yield over the weighted average yield for the 364-day T-bill was 5 bps on May 27, a four-year high.

 

"The spread (between the weighted average cut-off yield and cut-off yield) has also widened because mutual funds, which is the largest T-bill participant, are largely absent from the primary market," a dealer at a primary dealership said. "If you (mutual fund) could get these papers at higher yield in the secondary market, why would they buy it in the primary (market)?"   

 

The RBI had rejected all bids for the 182-day and 364-day last week, itself seen as a sign by the central bank to cool fears of tighter monetary policy. With decreasing rate hike fears heading into the rate decision Friday, the 91-day T-bill cut-off yield did ease and its spread over the weighted average yield shrank to a little over 1 basis point.

 

The central bank's measures announced on Friday to attract foreign capital are expected to improve durable liquidity in the banking system, improving the appetite for short-term instruments like T-bills. Moreover, traders are hoping the war in West Asia will come to an end soon with the warring nations working closely on a peace agreement, dealers said. US President Donald Trump urged both Iran and Israel to halt hostilities. He also added that "final negotiations" for peace were underway.  End

 

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

 

Edited by Avishek Dutta

 

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