Cut-off yields on treasury bills drop on RBI’s dovish policy

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Cut-off yields on treasury bills drop on RBI’s dovish policy


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“RBI has been very dovish in its commentary in its recent MPC, lowering the inflation projections too. Accordingly, the market has started pricing in rates, which will possibly remain unchanged in the next couple of months. Therefore, Treasury bill yields have come down, ”said Anand Bagri, head of domestic markets, RBL Bank.

By Manish M Suvarna

The cut-off yields on treasury bills (T-Bills) across tenures dropped sharply on Wednesday after the Reserve Bank of India (RBI) continued with its accommodative stance and retained a status quo on key rates.

On February 16, the RBI set cut-off yields at 3.6770% on 91-day, 4.1599% on 182-day and 4.4900% on the 364-day T-Bills, which were 18-24 basis points lower than the previous figures set at the auction. According to RBI, Rs 26,000 crore has been raised through T-Bills on Wednesday.

“RBI has been very dovish in its commentary in its recent MPC, lowering the inflation projections too. Accordingly, the market has started pricing in rates, which will possibly remain unchanged in the next couple of months. Therefore, Treasury bill yields have come down, ”said Anand Bagri, head of domestic markets, RBL Bank.

Last week, the RBI, in its monetary policy review, kept the repo and reverse repo rates unchanged, and the monetary policy committee (MPC), by a majority of five to one vote, decided to maintain an accommodative stance as long as necessary to revive and sustain growth. The market was expecting the reverse repo corridor to be restored and the central bank to change its stance to neutral.

Market participants said investors are cautious after the recent volatility in the market, and avoid placing bets on longer tenure bonds and are shifting towards the shorter-end leading to higher demand for such instruments. The cut-off yields on these instruments are expected to fall further in the coming auctions, considering the great demand from investors for short-term papers. However, it may rise again once the supply of government securities starts in the next financial year, where the government has announced higher borrowing figures, resulting in dampening of market sentiments.

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