Yields on treasury bills seen high on increased supply

The yields on treasury bills are expected to move up, as the government is set to borrow more via these short-term instruments than planned earlier.

According to the revised calendar, the government will be borrowing Rs 75,000 crore instead of the Rs 50,000 crore planned in the remaining first half of the current financial year.

“This may result in yields hardening further, as the government may have to pay more to accommodate the increased supply,” said a bond dealer with a domestic brokerage. The cut-off on the 91-day treasury bill auction at 8.06 per cent last week was the highest since October 2008.

 

The government’s treasury bills issuance program was revised upwards by the Reserve Bank of India (RBI) last week. RBI said the calendar was modified to meet emergent requirements of the government on account of temporary mismatches in cash position due to release of large refunds by the Central Board of Direct Taxes.

Also, the government has been borrowing heavily via cash management bills under the Ways and Means Advances (WMA) facility. Cash management bills worth Rs 32,000 crore have been issued so far in the current financial year.

According to the limits released by RBI, the government can borrow up to Rs 57,000 crore more till the end of September.

Short-term yields may come under pressure if the government takes the WMA route, despite higher treasury bill issuances.

The new treasury bills calendar and the WMA limits have reduced uncertainty about short-term liquidity conditions.

“Now that the revised plan has been notified, it will reduce volatility to some extent in the short-term rates,” said a treasury official of a public sector bank.

The interbank call money rate is seen around 7.25 per cent this week, while the market repo and collateralized borrowing and lending obligations may move slightly higher than the repo rate.