Another weekly Treasury bill (T-bill) and state government bond auction by the Reserve Bank of India (RBI) is about to begin. If you missed out the previous time, this is your chance.
The highest indicated yield for T-bills and state government bonds in the auction taking place next week are both 7%.
The deadline for bids is May 3, and May 4 is the day of settlement. Customers may reserve their bid amount through UPI by May 3 at 8 am and via net banking on May 1 at 11:30 pm.
The suggested yields for T-bills are 6.78%, 6.95%, and 7.00% for three months, six months, and 364 days, respectively. T-bill yields, however, have been declining recently as the RBI strategically pauses raising repo rates to give the economy a new push.
The federal and state governments are also issuing bonds at this time. The medium- to long-term central government bonds have indicative yields of 7.0%, 7.12%, and 7.27 percent, respectively, and will mature on April 10, 2028, February 6, 2033, and September 12, 2052.
Similar government bond or state development loan (SDL) auctions have been announced for various periods in Punjab and Tamil Nadu. Punjab notes have indicative yields of 7.48, 7.50, and 7.54 percent for their respective maturities of April 12, 2033, April 19, 2038, and May 3, 2043. Government bonds issued by Tamil Nadu have a 3.05 May 2033 maturity date and a 7.45 % yield.
Future yields and the repo rate
The RBI underlined in the minutes of its monetary policy committee (MPC) meeting this month that it would carefully monitor inflationary pressures given the persistent economic headwinds even as it decided to temporarily stop its repo rate rises.
Following a series of increases over the previous quarters to control inflation, the RBI held the rate steady for the first quarter of fiscal 2023–24. Government securities (G-secs) have seen a record jump in yields as a result of the spike in the repo rate. Banks also raised their lending rates, which caused some to worry that it would have an adverse effect on borrowers, particularly those who had house loans.
“The yields came down sharply due to positive market sentiments, which reflected in the weekly RBI bond auctions,” claims Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP, a fixed income consulting business. In contrast to the MPC’s hawkish outlook, the market expects a prolonged repo rate halt, which has caused the yields to significantly decrease.
Additionally, he claims that the abundant liquidity in the banking system, lower state government borrowing (SDL) than planned for the calendar year, increased investment appetite from mutual funds as a result of large inflows in March, expectations of a US Fed rate pause, and fewer investment opportunities for investors as a result of the start of the fiscal year are all contributing factors to the repo rate. In addition, according to Srinivasan, “the bond market will continue to trade range-bound with an upward bias tracking external and internal factors, including inflation and subsequent Fed and MPC statements.”
