Expectations of tightening of surplus liquidity from the banking system and additional supply of Treasury Bills (T-Bills) have pulled up yields on these instruments by 5-15 basis points in the last two weeks. According to the data from the Reserve Bank of India (RBI), the cut-off yields on T-Bills maturing in 91-day have risen 12 basis points, 182-day (19 basis points), and 364-day (28 basis points).
“There has been an additional supply of T-Bills announced, which has led to a spike in yields as March tends to be a period of tight liquidity,” said Lakshmi Iyer, CIO – debt & head products, Kotak Mahindra Asset Management Company.
Last month, the RBI had increased the amount to be raised through T-Bills after reviewing the cash position of the government. The Centre will raise Rs 7,000 crore through the 91-day T-bill, Rs 15,000 crore each through the 182-day and 364-day T-Bills. The decision was taken after consultation with the government as it will continue to have the flexibility to modify the notified amount and timing for the auction of T-Bills depending upon the requirements, evolving market conditions and other relevant factors.
Additionally, during the quarter-end, there are huge outflows from the banking system on account of GST, redemption pressure on the mutual funds, among others, which drain out liquidity from the system. Market participants expect yields to rise further on the short end of the curve due to liquidity tightening and some other domestic concerns. “There is a high chance that we could further spike at the short end of the curve, which could lead to rise in T-Bill yields too,” Iyer added.
