T-bill auction witnesses firm demand from Mutual Funds, private banks

Reserve Bank of India set the cut-off yield on the 91-day, and 364-day T-bills at 6.86 per cent, and 7.05 per cent respectively

Treasury bills (T-bills) auction on Wednesday saw a firm demand from mutual funds and private banks, dealers said. Mutual funds (MFs) bought the 91-day T-bills due to inflows in their liquid funds, whereas, the 364-day T-bill was stocked up by private banks in order to fulfill their balance sheet requirements, dealers said.

The RBI set the cut-off yield on the 91-day and 364-day T-bills at 6.86 per cent and 7.05 per cent, respectively, which were 2 basis points lower than the previous week. Whereas, the cut-off yield on 182-day T-bill was set at 7.04 per cent, same as the previous week.

“Mutual funds have been buying 3-month T-bills in the secondary market also because of inflow in their liquid funds,” a dealer at a state-owned bank said. “The 364-day T-bill was mopped up by private banks because of their balance sheet requirements. They need to show 1-year paper in their balance sheet,” he added.

In the last auction of T-bills on August 17, yields on the 91-day and 182-day securities were set 13 bps higher each than the previous week’s auction while that on the 364-day security was set 11 bps higher as the liquidity in the banking system slipped after the imposition of incremental cash reserve ratio coupled with tax payments.