Low rates prompt govt to opt for T-bills

The government seems to be building up cash via treasury bill (T-bill) auctions in view of the recent easing in market rates and to meet the cash requirement for paying wage arrears at the end of this month.

The government significantly raised its normal fortnightly 364-day T-bill auction amount to Rs 4,000 crore this week from Rs 1,000 crore two weeks ago. The auction amount in the normal weekly 91-day T-bill auction also was raised to Rs 5,000 crore from Rs 3,000 crore a week earlier.

The government is probably using treasury bills instead of dated securities to build up the cash position, as the scheduled borrowing of Rs 96,000 crore in the first half gets over with this week’s auction of Rs 8,000 crore.

“The rise in T-bill auction amount is due to a combination of several factors, including market appetite, cash management and balancing of borrowing through various instruments,” a finance ministry official said.

Yields on government securities have eased in the last one month on falling crude oil prices, easing inflation and demand for statutory liquidity ratio (SLR) securities.

The SLR demand was higher in August, as the redemption of government securities in August was more than fresh supply. The yield on the 10-year benchmark paper has fallen almost 56 basis points over the last one month.

In August, the government borrowed Rs 34,500 crore via T-bills and gilts, while it redeemed securities worth Rs 42,900 crore.