Retail investors prefer treasury bills over sovereign govt bonds

Retail investors investing through Reserve Bank of India's retail direct platform invested more in treasury bills as compared to instruments like state and central government securities, and sovereign gold bonds.

The total subscriptions in the primary market rose to Rs 2,698 crore on September 11, against Rs 1,809 crore on April 3. In terms of T-bills, retail investors invested Rs 1,807 crore as of September 11, up from Rs 1,113 crore on April 3. Subscription in T-bills saw a 62 per cent growth as compared to 49 per cent growth in overall subscription during the April-September period.

Market participants believe that the appetite for sovereign debt instruments is increasing because people find the higher interest rates in the market more appealing than regular investments, and sovereign debt instruments are considered to be safe.

"The Treasury bills are giving better returns at the moment and the sovereign assures safety," said Ajay Manglunia, managing director at JM Financial. "We can also see that the yield curve is flat; people are getting good returns for shorter-tenure papers," he added.

Three-month T-bills are giving much higher returns than one-year fixed deposits, market participants said. Major banks are offering a return between 5.75-6.70 per cent on one-year fixed deposits. Whereas, returns on one-year T-bills are currently trading at 7.06 per cent. For three-month and six-month T-bills, the return is currently at 6.85, 7.05 per cent respectively.

"For any investor who is looking for short-term investment, retail investment basically, T-bills are giving much higher rates than the fixed deposit rates. For example, if anybody wants to go for a three-month or six-month or a one-year fixed deposit, definitely T-bills rates are much more attractive than the fixed deposit rates," said Venkatakrishnan Srinivasan, bond market veteran, founder and managing partner of Rockfort Fincap LLP. "Definitely people do prefer government securities also, but that market is still coming up. But for T-bills, a huge appetite is there, coming from retail investors," he added.

Market participants believe that the appetite for sovereign debt instruments is expected to remain firm among retail investors as market rates are expected to remain higher for longer amid liquidity tightening.

Liquidity in the banking system slipped into deficit mode once again ahead of the second tranche of Incremental Cash Reserve Ratio (I-CRR) disbursement on September 23, due to tax outflows, dealers said. Banking system liquidity slipped into deficit in August for the first time in the current financial year.