Auctions Spring Conflicting Signals On Rate Front: Dealers

The treasury head of a private sector bank said, "We are confused whether this is a signal that long term yields are going to be higher". Some dealers have suggested that they would wait for the next t-bill auctions to get a clearer picture. "We are not sure what the hike in cut-off yield is suggesting, we have to wait for the next 14-day and 91-day treasury bill", said a dealer.

A section of the players, however, did not accept the line that the hike in the cut-off yield was significant. "The rate is almost in line with the rate at which they are selling bills on the open window", said a dealer with a nationalised bank.

Another dealer said, "RBI had to hike the cut-off yield (On 364-day T Bills) to avert a devolvement," but said that "given the higher rates in the call money market, the RBI had no other option".

In the Wednesday's auction, the RBI hiked the cut-off yield for 364 day T bill from 10.32 per cent in the previous auction to 10.75 per cent. Indeed, the RBI has hiked the cut-off rate in the last two 364-day auctions. The earlier hike was more than 100 basis points.

But this is in contrast to the auction pattern in the last 14-day and 91-day treasury bill auctions. In the 14-day T bill auction on August 7, the RBI maintained the cut-off yield but in the auction for 91-day T bills. On the same day, the central bank had reduced the cut-off yield from 9.27 per cent to 8.60 per cent.

These adjustments however had little impact on the fate of the auctions: both the T bills devolved to the extent of 98 per cent each on the RBI.