The Treasury Bill (T-Bills) auctions on Wednesday yielded the highest cut-offs, with the differential between one year and 10 years getting compressed to just around 6-7 basis points, as the Government announced higher borrowing via T-Bills and expectation of another rate hike.

The interest differential between 1 year and 10 years was around 40 basis points in mid-January. One basis point is equal to one-hundredth of a percentage point.

The weighted average yield (WAY) on the 91-day T-Bill came at 6.9217 per cent (about 12 basis points higher vis-a-vis previous week’s WAY of 6.8034 per cent).

The WAY on the 182-days T-Bill came it at 7.2712 per cent (about 11 basis points higher vis-a-vis previous week’s 7.1572 per cent).

The weighted average yield (WAY) on the 364-days T-Bill came it at 7.3639 per cent (about 14 basis points higher vis-a-vis last week’s 7.2193 per cent).

“There is a squeeze in liquidity in the market… March will be an exceptional month as there will be redemptions, advance tax payments, states hastening their borrowings and also year-end demand from corporates. This will keep rates in the higher range for sure,” said Bank of Baroda Chief Economist Madan Sabnavis.

To top it all, the specter of inflation remaining over 6 per cent in February also has cast a shadow on the market with expectations now of another rate hike not being ruled out, he added.

Sabnavis noticed that this is different from the mood last month when he expected that there would be a long pause.

Marzban Irani, CIO, Fixed Income, LIC Mutual Fund, attributed the spike in T-Bill yields to the market discounting the possibility that the monetary policy committee will hike the policy repo rate and the retail inflation reading for January coming in above 6 per cent .

The Reserve Bank of India, in consultation with the government, last week announced a revised calendar for March for the auction of Government of India Treasury Bills. The government will be borrowing ₹1.95-lakh crore next month via T-Bills against ₹1.45-lakh crore notified in the earlier calendar.

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