Treasury bill cutoff yields rise at weekly auctions

Treasury bills (T-bills) auctions on Wednesday returned the highest limits, with the difference between one year and 10 years compressed to just about 6-7 basis points as the government announced higher borrowing through T-bills and expectations of one further rate hike.

The interest rate differential between 1 year and 10 years was around 40 basis points in mid-January. A basis point corresponds to one hundredth of a percentage point.

The weighted average return (WAY) on the 91-day T-bill was 6.9217 percent (about 12 basis points higher than the previous week’s WAY of 6.8034 percent).

The WAY on the 182-day T-bill was 7.2712 percent (up about 11 basis points from 7.1572 percent last week).

The weighted average return (WAY) on the 364-day T-bill was 7.3639 percent (up about 14 basis points from last week’s 7.2193 percent).

“There is a liquidity squeeze in the market… March will be an exceptional month as there will be repayments, tax prepayments, governments accelerating their borrowing and also year-end corporate demand. This will certainly keep interest rates higher,” said Madan Sabnavis, chief economist at the Bank of Baroda.

To top it off, the specter of inflation remaining above 6 percent in February has also cast a shadow over the market, with expectations of another rate hike not now ruled out, he added.

Sabnavis noted that this is a different sentiment than last month when it was expected there would be a long hiatus.

Marzban Irani, CIO, Fixed Income, LIC Mutual Fund, attributed the rise in T-bill yields to the market factoring in the possibility that the monetary policy committee will hike interest rates and January retail inflation above 6 percent.

The Reserve Bank of India, in consultation with the government, last week announced a revised calendar for March for the auctioning of Indian government bonds. The government will next month borrow ₹1.95 lakh crore via T-bills against 1.45 lakh crore announced in the earlier calendar.