T-Bills yield rises over 150 bps post RBI starts increasing repo rate

The yield on 91-day treasury bills rose by 1.5997 per cent to 5.6287 per cent, on 182-day yield rose by 1.6674 per cent to 6.0999 per cent, and 364-day yield rose by 1.5027 per cent to 6.3378 per cent.

Before the first rate hike by the central bank this year on May 4, yield on 91-day T-Bill was at 4.0290 per cent, 182-day was at 4.4325 per cent, and 364-day on 4.8351 per cent.

“Yields in T-Bill have risen in proportion with hike in the policy rates by 140 bps plus the market is still expecting some more hike which is based on the inflation trajectory. See that smaller hikes may be expected in this month end policy but it’s more data dependent,” said Ajay Manglunia, Managing Director and Head Fixed Income at JM Financial (NS:).

In the August monetary policy review meeting, the RBI had raised repo rate by 50 basis points. It was the third straight rate hike by the central bank ever since it has started increasing the rates this year.

Central bank began rate hike in May by 40 basis points, which was followed by 50 basis points rate hikes each in June and August.

“On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.40 per cent with immediate effect,” the RBI said in a statement.

Meanwhile, narrowing of surplus liquidity from the banking system has also helped rates on these instruments sharply.

Liquidity in the banking system, which was in the huge surplus of around Rs 5.72 lakh crore before the first rate hike, dropped sharply to Rs 1.6 lakh crore as on September 7.

This was due to dollar sales by the RBI to shore up the rupee, tax outflows, a slack in government spending and slower deposit growth relative to credit growth.

“Continuous repo rate hikes from RBI and calibrated removal of liquidity from the banking system, the large-scale issuances are also factoring the yields to go up across money market instruments in particular,” said said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincorp LLP, a Mumbai-based debt advisory firm.

Srinivasan added, “Recently, we have witnessed large issuances of commercial paper issuances from OMCs and from big Corporate houses. The issuances of Bank CDs are also increasing.”

As per data compiled showed, commercial papers and certificates of deposit worth over Rs 80,000 crore has been issued by the companies and banks in August.

Whereas so far in September, CPs and CDs worth Rs 30,000 crore have been issued.

With the continuing growth momentum, the borrowing of funds through money market instruments are increasing day by day. The investors are also getting many options to invest in various short term instruments at attractive levels.


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