Demand for T-bills softer than expected due to tight liquidity, say dealers

Banks parked almost Rs 1.3 trillion with RBI on Tuesday, versus Rs 2.3 trillion on July 4

The demand at the Treasury bills (T-bills) auction on Wednesday was softer than expected due to tightening liquidity conditions in the system, dealers said.

The Reserve Bank of India (RBI) set the cut-off yields on the 91-day, 182-day, and 364-day T-bills at 6.74 per cent, 6.87 per cent, and 6.88 percent respectively. The cut-off yield on the 91-day t-bill was 2 basis points higher, whereas the 182-day cut-off yield was 4 basis points higher than the last week. However, the cut-off yield on 364-day T-bills was set 3 bps lower than last week.

“Last week the liquidity was better due to government spending and other factors,” a dealer at a primary dealership said. “Now, we can see that the overnight rates have also gone up because of liquidity.”

The latest data showed banks parked almost Rs 1.3 trillion with the RBI on Tuesday. This is against Rs 2.3 trillion on July 4.

The overnight weighted average call rate was at 6.46 percent on Wednesday, against 6.41 percent on July 5.

“Apart from the demand-supply factor, liquidity plays an important role in T-bills cut-off,” a dealer at a state-owned bank said. “The market was expecting around 70-71 percent for 91-day, around 82 percent for 182-day, and 85-86 percent on the one year T-bill.”