Treasury Bill Yields Rise in India After RBI’s Cash Move
A police officer walks past the Reserve Bank of India building in Mumbai. (Photographer: Kanishka Sonthalia/Bloomberg)

Treasury Bill Yields Rise in India After RBI’s Cash Move


India’s Treasury bill yields rose at an auction after the central bank took the first step toward paring back on some of its pandemic relief measures.

The 364-day bill was sold at a yield of 3.579%, compared to 3.4681% at the last auction, and also beating estimates from a Bloomberg survey. The 190 billion rupees ($2.6 billion) sale was the first sovereign auction since the Reserve Bank of India said late on Friday it plans to drain cash via a reverse repo operation.

“After today’s T-bill auction, the markets will eagerly look forward to an announcement of open-market bond purchases from the RBI and that will determine the level of yields in the coming auctions,” said Debendra Dash, a fixed-income trader at AU Small Finance Bank in Mumbai.

Treasury Bill Yields Rise in India After RBI’s Cash Move

The lift in yields indicate RBI’s desire to raise short-term borrowing costs is working, as it sought to address a dysfunction in money-market pricing. Traders will now need reassurance from the central bank that the measures won’t ripple through and impact its support for the long-end of the bond market.

Bond traders are watching if the RBI would continue its open market operations after the one scheduled on Thursday. Focus would then shift to the 14-day reverse repo operation on Friday, where the RBI aims to drain 2 trillion rupees of banking funds. A Bloomberg Economics India Banking Liquidity Index shows there’s around 6.1 trillion rupees of liquidity.

The yield curve continued to flatten in the secondary market on Wednesday. Yield on the 10-year bond fell two basis points to 5.88% while the 5.15% 2025 bond yield rose one basis point to 5.26%.

The cut-off yield on the 91-day and 182-day bills were at 3.2799% and 3.4507% respectively, in line with survey forecasts but at higher yields than last week’s sale.

©2021 Bloomberg L.P.

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