T-Bill Yield 6.89%, Bonds To Trade Flat ‘With Upward Bias In Yields’: RBI T-Bill And Bond Auction Update
With interest rates reaching record highs both domestically and internationally, the bond market has already shown significant investment potential. In an effort to boost the economy this week, the US Federal Reserve left its benchmark rate unaltered at 5.25%, despite continuing worries about inflation.
In order to promote loan expansion and boost economic activity before the general election, the Reserve Bank of India (RBI) has also loosened its position on repo rate increases since April. As rates seemed to be plateauing, the market, particularly the bond sector, has been open to these adjustments.
In spite of indications that the RBI’s drive to raise interest rates may be coming to an end, the yield on government securities remained almost steady. The yield on Treasury notes (T-bills) is not much different from the previous week’s auction for next week’s auction, continuing a recent pattern.
Three-month, six-month, and three-month and a-half (364)-day T-bill yields are 6.75 percent, 6.89 percent, and 6.89 percent, respectively. These rates are practically identical to last week’s return. In addition, four states—Andhra Pradesh, Jammu and Kashmir, Tamil Nadu, and Mizoram—have declared their participation in this bond sale.
The two states with the highest interest rates are Jammu & Kashmir (7.44%) and Andhra Pradesh (7.42%), both of which have bonds that mature on June 21, 2035.
Market trends for bonds
Despite pausing policy rate increases, the Fed has not ruled out two more increases this year, depending on inflation. The rates on the Indian bond market increased by a few basis points as a result of that choice. For instance, on Friday, the yield on a 10-year government bond ended at 7.04 percent.
Banks are regularly getting deposits as a result of the removal of 2000 rupee notes, improving the liquidity of the financial system, according to Venkatakrishnan Srinivasan, founder of Rockfort Fincap LLP and former Senior Vice President of Debt Capital Market at ICICI Securities. Through many VRRR auctions, RBI is also continuing its attempts to drain the extra liquidity.
According to Srinivasan, “The bond market is expected to trade flat, with an upward bias in yields.”
He thinks that since the interest rate has virtually reached its high, the market is not anticipating any rate increases in the next RBI MPC decisions. As a result, long-term investors scramble to put their money in bonds with extended maturities. According to Srinivasan, it has also given the corporate bond market the appearance of a yield curve inversion.
The corporate bond market is seeing outstanding investor demand, according to data from Rockfort Fincap LLP. With a margin of only over 25 basis points (bps) above the 10-year government bond, the AAA-rated NabFid raised Rs 10,000 crore from the 10-year bond for the first time at a yield of 7.43% annualised.
We have significant long-term tenor bond issuances planned in the next government bond auctions, according to the GoI (government of India) and SDL (state development loan) borrowing calendar. Additionally, before the merger, HDFC continuously issued long-term debentures, and Public Sector Undertakings (PSUs) continued to issue long-term tenor bonds, so we anticipate that the inversion of the corporate yield curve won’t be as simple as we would have thought.
It would be interesting to see if demand outweighs supply in the inversion of the yield curve for corporate bonds given the anticipated substantial supply of both government and corporate bonds, according to him.
