Indian T-bill yields reach one-year-plus highs as auction demand weakens

what happened

Yields on India's short-dated government bills rose to their highest level in more than a year after a weak auction, according to a report from ICICI Bank Research cited by Moody's. The 91-day cut-off climbed to 5.93% from 5.73%, the 182-day to 6.55% from 6.29%, and the 364-day to 6.69% from 6.49%. The bid-to-cover ratio across the three tenors was 1.74, a sign that buyers were scarce.

The bank said the domestic bond curve steepened last week, as short-term yields rose on soft bill demand and tight liquidity, while longer yields eased slightly. In the dated securities auction the government raised Rs 33,000 crore, with a bid-to-cover of 2.4 against a long-term average of 2.8. Seven-year and 30-year paper drew firmer interest, while the three-year segment was weaker.

ICICI Bank expects the 10-year benchmark yield to trade between 7.30% and 7.45% in the near term. It also flagged that states plan to borrow Rs 29,900 crore this week, above the Rs 26,200 crore calendar, which could keep state bond spreads wide. The system surplus widened to Rs 1.6 lakh crore by October 30.

why it matters

Weak bill demand and heavier state borrowing add pressure on Indian government bonds, although comfortable liquidity and the reversal of a variable rate reverse repo operation may offer some support. Global cues, including the US midterm elections and upcoming payrolls and unemployment data, will shape sentiment.

market impact

Indian government bonds: weak auction demand lifts yields and weighs on bond prices

• ▼Indian government bonds pressure down — weak auction demand pushes yields higher and bond prices lower

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