Govt scales down issue size of cash mgmt bill

The government borrowed around 56 per cent of the notified issue size under cash management bills, as traders demanded higher yields amid tighter liquidity conditions on Wednesday.

The Reserve Bank of India (RBI) had put up Rs 9,000 crore of 42-day cash management bills on sale on Wednesday, for which Rs 23,225 crore of bids were received. However, only Rs 5,000 crore worth of bids were accepted. The cut-off yield was at 8.67 per cent.

“The government did not give in to the market pressure to jack up yields,” said a treasury official of a Mumbai-based public sector bank.

This was the second cash management bill auction this week, accompanied by two treasury bill auctions on the same day. “There was shortfall in short-term liquidity on Wednesday, which led to traders asking for higher yields. There should be some gap between two auctions, otherwise there would be no appetite, and market would try to dictate terms,” the official added.

 

On Tuesday, the government had borrowed Rs 6,000 crore under 42-day cash management bills, at the cut-off yield of 8.69 per cent. on Wednesday, the government borrowed Rs 4,000 crore under 182-day treasury bills and Rs 4,000 crore under 91-day treasury bills. The cut-off yields stood at 8.95 per cent and 8.86 per cent, respectively.

According to RBI, cash management bills are issued to overcome temporary mismatches in the government's cash flow and cannot have maturity periods of more than 91 days. “Since the government borrowed at such a short notice, there would have been a reassessment of the cash position, and the issue size was adjusted accordingly,” said a bond dealer with a domestic brokerage. RBI had notified the auction just a day earlier.

The liquidity deficit worsened on Wednesday, owing to the higher short-term supply of debt papers. The high demand for funds in the holiday-shortened week also added to the pressure. Reflecting the need for funds for two days, banks' borrowing from RBI under the Liquidity Adjustment Facility, at the repo rate of 8.5 per cent, shot up to Rs 1,16,160 crore on Wednesday. Banks had borrowed Rs 87,955 crore yesterday.

According to the Clearing Corporation of India, the overnight interbank call money rate touched a high of nine per cent in intraday trade on Wednesday, while the weighted average rate closed at 8.64 per cent.