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What Happened With The 364 Day T-Bill on Wednesday?

Okay, so hardly anyone notices this stuff.

The RBI keeps holding auctions of T-Bills – or Treasury Bills – every week. These are notes for government borrowing that mature within a year. They are traded on the wholesale markets, typically by banks, insurers and mutual funds.

Every week,the RBI auctions 14,000 cr. of T-Bills (in the first half of this financial year). There’s a 91 day T-Bill every week (matures 91 days after issue) for about 8,000 cr. That went through at 7.97%, higher than last week’s 7.85%. This auction got “oversubscribed” by about 7,500 cr. (see auction result). Excess bids of the “non competitive” variety are usually placed by states to park their excess cash. This is also not significantly different from what’s been happening recently.

However the 364 day T-Bill, which had an auction of Rs. 6,000 cr. on Wednesday, seems to have been cancelled.


Now Bloomberg thinks that this is an auction failure. That the auction probably had yields too high, so it had to be rejected. This would make sense if yields crossed 8% – that would send a bad signal to markets. And given it has the “excess” cash in the 91 day T-Bill, the government doesn’t really need this money urgently , it can wait till the end of 91 days. And in that piece it sees a big fall for Indian bonds in the last few days. 

India’s benchmark 10-year yields climbed 19 basis points in the last two weeks as a global rout wiped more than $400 billion off the value of fixed-income securities around the world in about a month. Twelve-month commercial paper rates in India have rallied to 9.03%t from this year’s low of 8.71% on 13 April, data compiled by Bloomberg show.

While stock markets are down today (Thursday), bond markets are doing okay, with the 10 year yield falling back to 7.94% (from nearly 7.99% yesterday). Even the US Dollar has retreated to Rs. 63.9, versus levels like 64.2 yesterday.

These are volatile times. Auction failures will invite reactions from the RBI, especially if yields are rising as interest rates are falling.

  • Praveen Vishnu Shamain says:

    Thanks. One change required in the article. Today is Thursday and NOT Friday, as mentioned in the second last paragraph.

  • James says:

    Deepak, its a Bloomberg wire story carried by Mint, not a Mint piece as such..

  • What does the last line mean – yields are rising as interest rates are falling? You are probably alluding to the recent rate cuts by the RBI and the banks. Unfortunately, artificial rate cuts not backed up by economic fundamentals cannot determine secondary (free) market interest rates for long. RBI’s own rate cuts were probably premature and just aimed at staving off criticism. When the banks didn’t follow, they were arm twisted. No wonder yields are now rising. As money flows out of the country (for any reason), yields are bound to rise. The REAL fall in interest rates – a la 2003 – will happen only when domestic savings rate rises. That will happen, but gradually. We need a sustained period of low inflation for that to happen. Until then, it is all industry lobbying, political maneuvering, media noise and what not. Remember the 2013 crisis happened after Subbarao cut rates earlier in the year.