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Informist, Wednesday, Sept. 9, 2026

 

--91-day T-bill cut-off yield at auction 5.2089%, lowest since Jul 6, 2022

 

NEW DELHI – Throwaway rates in the overnight money markets pulled down the 91-day Treasury bill cut-off at auction to an over four-year low Wednesday, even below the policy repo rate of 5.25%. Mutual funds, which have been lending in the tri-party repo market at rates as low as 2.57% over the past week, were the largest buyers of the short-term debt instrument, dealers said. 

 

Banking system liquidity surplus has topped INR 10 trillion since last week following inflows from foreign currency non-resident (banks) deposits, which has effectively removed banks from the borrowing side in overnight markets. Mutual funds, which do not have access to the RBI's Standing Deposit Facility to park excess liquidity at 5.00%, have been lending at a weighted average rate of around 4.50-4.60% in the tri-party repo market. The RBI set the cut-off rate on the 91-day T-bill at 5.2089% Wednesday, down from 5.2599% last week and the lowest since Jul. 6, 2022.

 

"You don't want to go long because you don't know what the RBI will do (to drain liquidity), but you have to deploy money as the next alternative is 4.50% (in the tri-party repo market)," a fund manager at a mutual fund said. "At this rate (on the 91-day T-bill), the market is basically not factoring in any rate hikes in the next three months, but if you look at the longer-term cut-offs, those are still able to reflect a hiking cycle."

 

The 364-day T-bill cut-off yield was 5.9148% Wednesday, the highest since May. The spread of the one-year bill over the three-month instrument widened to 71 basis points from 65 bps last week. The cut-offs on the longer term T-bills were in line with the median estimates in an Informist Poll, while the 91-day T-bill's cut-off was 3 bps lower.

 

Comfortable liquidity conditions over the past few weeks have kept the 91-day T-bill's yield at auction in check near the repo rate even as the 182-day and 364-day cut-offs have risen. Traders expect the RBI's Monetary Policy Committee to raise the repo rate in October or December as part of a total policy rate increase of 50-100 bps, with measures to absorb the excess system liquidity likely for better transmission of policy tightening, dealers said. Systemic liquidity, as measured by the RBI's net liquidity absorbed, rose to INR 11.16 trillion Sunday, the most since the RBI began released that data in January 2019.

 

Mutual funds also pointed to the lack of alternative investments as the supply of short-term certificates of deposit has come down as banks are flush with liquidity. Most domestic banks have used the FCNR(B) inflows to pay down high-cost liabilities, according to executives. Total FCNR(B) deposits under the scheme were at a higher-than-expected $127.23 billion by the time the RBI's concessional scheme ended Aug. 31. While three-month CD rates have come down sharply over the past month, the one-year CD rate remains above 7%, sharply above the policy repo rate of 5.25%.

 

Banks have also preferred to remain invested in short-term government securities rather than chase higher returns through corporate debt instruments. Investors wanted to cap their investment horizon to limit mark-to-market losses that may emerge should the central bank tighten monetary policy, even if a rate hike is delayed to December instead of the next meeting in October, dealers said.

 

"Lower figure (cut-offs) was expected this time around because of heavy demand from mutual funds as there is large liquidity surplus," a dealer at a state-owned bank said. "As far as rate hike is concerned, market may look at FOMC (US Federal Open Market Committee) decision and inflation data as well. In August, crude had cooled down a bit so rate hike bets are slightly delayed for now."  End

 

Reported by Aaryan Khanna

With inputs from Diksha Tripathy

Edited by Rajeev Pai

 

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