For the nth time running, there were hardly any takers for the treasury bills on offer in the 6- and 12-month tenures. And it all makes sense. When the alternative PIBs are offering double-digit lucrative rates with short maturities, single-digit returns on T-bills do not have enough to entice market participants. The government fetched over Rs87 billion in the latest t-bill auction, missing the Rs100 billion mark by some distance, yet again.
The yields remained unchanged and the bulk of participation (~85%) was in the shortest-tenure paper of 3-month. This has been the case for quite some time now. The variables have not changed enough in the previous few auctions-–hence the same old story. With inflation coming below eight percent, anticipation of a rate cut further propelled the participants’ interest mostly in the short-term papers.
The change in policy rate has now been anticipated for quite some time and should inflation continue its journey south, it wouldn’t be long before a rate cut actually happens. This is where the market is eyeing to cash on. Most of the players are already heavily invested in the PIBs, feasting on the government’s ever-increasing appetite for long-term, expensive debt. Continued participation in only 3-month paper, reaffirms the market’s stance of a rate cut in the near future.
The relatively dull participation is also explained by one treasury banker who mentioned negative yields on T-bills a key factor. Certainly, there is little point in showing love for T-bills when papers of almost similar tenure offer much higher returns. The government has shown no signs of shying away from improving the debt maturity profile and building a long-term yield curve-–in which case, the thin participation trend in T-bills is likely to continue in the near future.
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