RBI Treasury Bill And Bond Auction Update: Long-Term Yield Continues To Be Under Pressure; T-Bill Borrowings Drop

The Reserve Bank of India (RBI) has announced yet another weekly auction of Treasury bills (T-bills) and state government loans (SDLs). The indicative yield for three-month, six-month, and 364-day T-bills is 6.71 per cent, 6.82 per cent, and 6.87 per cent, respectively. The settlement date is July 6, 2023.

For SDL auctions, nine states have announced their participation. These are Tamil Nadu, Andhra Pradesh, Himachal Pradesh, Telangana, Rajasthan, Assam, Kerala, Meghalaya, and Punjab.

Punjab and Telangana are offering the highest interest rates at 7.51 per cent for their SDLs maturing on July 5, 2048, and July 5, 2050, respectively. 

Likewise, Kerala is offering 7.49 per cent for its bond maturing on July 5, 2042, and Andhra Pradesh and Tamil Nadu at 7.48 per cent for bonds maturing on July 5, 2043.

Markets expect the RBI to continue borrowing a higher percentage of long-tenor instruments. 

In the first quarter of FY 2023-24, the state governments borrowed SDLs of over 83 per cent of their scheduled borrowing. In the second quarter, the borrowings are expected to be to the tune of Rs 2,37,360 crore, an expert said, citing RBI’s consultation with the states and union territories. 

Says Venkatakrishnan Srinivasan, the founder of Rockfort Fincap LLP, “With the perceived large supply of government bonds and SDLs, along with diminished hope of any immediate rate cut in India, besides other major central banks’ decision to increase rates further, we expect that the long-term yield will continue to be under pressure in the second quarter also.”

Besides the negative market sentiments, Srinivasan adds that the Indian bond market was also weakened due to US Treasury yields shooting up across the curve after the Fed’s hawkish stance. Amid this, on Friday, the 10-year government bond closed at around 7.12 per cent in India. 

Indian Bond Market

RBI has reduced the borrowing amount of Treasury bills from Rs 32,000 crore per week in the first quarter to 24,000 crore in the second quarter. However, Srinivasan says, “The reduction in the borrowing amount of T-bills should result in increasing investor demand in the coming quarter for the short-term segment. It should also help to steepen the yield curve.”

On the corporate bond market, as per Rockfort data, Goswami Infratech Ltd. rated BBB- bonds, raised Rs 14,300 crore this week, showing the path to other lower credit issuers to tap the bond market. “In line with the government bond market, we expect the yield on AAA corporate bonds also to increase at least by 5-7 bps,” adds Srinivasan. Further, Srinivasan expects the yield spread between AAA, AA+ and AA to widen further, attracting more investors as yields pick-up.