MUMBAI: Worries about government finances are easing with the short-term Treasury-bill yields collapsing to less than reverse repo rate and yielding negative real rates for the first time since the global
financial crisis.
Treasury bills are sovereign papers with up to one-year maturities.
“Investors are now looking to invest in shorter-term papers as they would not want to lock in long duration in lower rates,” said Ritesh Bhusari, deputy general manager at South Indian Bank. This coupled with surplus liquidity in the system is dragging T-Bill rates down.”
“Government is benefiting from this as they raise short-term money via T-bills at a lower rate,” he said.
The banking system has a surplus of Rs 4.36 lakh crore.
Since the past four weeks, the yields have started dropping. A three-pronged reason - demand for T-bills, surplus liquidity and no new sales of CMBs - is behind the move.
The seven-day T-bill yields plunged 64 basis points to 2.85 percent since June 8, show data show data from the Financial Benchmarks India Pvt Ltd. The 14-day series tanked 48 basis points. A basis point is 0.01 percentage point.
The three-month paper, billed as most liquid securities, dropped 28 basis points reflecting a softer interest rate regime.
“With some cash management bills maturing and the net
treasury bill supply lower in the quarter ahead when compared with the previous quarter, the supply of paper has also reduced,” said Suyash Choudhary. Head - Fixed Income at IDFC Asset Management
This may be putting further downward pressure on yields at the very short end,” he said.
On July 1, the Reserve Bank of India auctioned Rs 35,000 worth of treasury bills maturing next three months to one-year time period.
If you compare this primary sale with that of another around in the June second week, the government has saved funding costs by 10-26 basis points in terms of cut-off yield, above which no investor could quote any bid.
Yields on Treasury Bills had jumped as much 56 basis points since May 22, when the Reserve Bank of India cut the benchmark rate to a record low, with the government raising Rs 80,000 crore via cash management bills (CMBs) outside the borrowing calendar, ET reported on June 8.
The real rate is also turning negative bearing good news for borrowers at least. It is the differential between one-year Treasury bills and projection of consumer price rises.
While the one-year sovereign papers are yielding around 3.45 percent, the Reserve Bank of India projected inflation in the range of 3.6-3.8 percent during 2021-22.
The central bank has conducted a switch auction Thursday as it bought long dated papers from the market in lieu of selling Treasury bills of similar quantum for Rs 10,000 crore adding supply of such papers.