T-Bill rates spurt as investors link price to term repo
Interest rates on 3-mth T-bills have spiked to as high as 8.80-8.90% with investors pricing them in relation to term repo rates instead of overnight repo.
By Saikat Das, ET Bureau |
MUMBAI: Interest rates on three-month treasury bills have spiked to as high as 8.80-8.90 per cent with investors pricing them in relation to term repo rates instead of overnight repo, in line with a shift in the Reserve Bank of India’s focus. Overnight repo has ceased to be the key operating rate after the Reserve Bank further curbed bank borrowing limits in its first bi-monthly policy, making investors turn to term repo.
“Investors are trying to price T-bills in respect of term repos,” said Dwijendra Srivastava, head of fixed income at Sundaram Mutual. “Three-month treasury bills are tracking the same spread over and above term repos, which may have turned out to be the operating rates,” he said. The gap or spread between term repo and T-bills has been hovering about 50-75 basis points, which was earlier the spread between overnight repo and T-bills. In April, threemonth T-bills quoted cut-off yields in the range of 8.86-8.94 per cent in weekly auctions.
In its first bi-monthly policy on March 31, the Reserve Bank reduced banks’ borrowing limit under overnight repo by half to 0.25 per cent of total deposits while increasing the cap under seven-day and 14-day term repos to 0.75 per cent from 0.5 per cent. This means, the overnight repo caters to only a portion of refinancing and, hence, it cannot remain the main operating rate, which is currently hovering between 8-9 per cent depending on money demand, dealers said.
Lenders are now tapping term repo borrowings. The weighted average rates for three-day, 13-day and 15-day repos were 8.22 per cent, 8.39 per cent and 8.12 per cent, respectively, according to the latest RBI auction data. “Effective overnight rates have moved up due to the shift in amounts available under overnight repo window vis-avis the term repo window,” said Amit Tripathi, head of fixed income at Reliance Mutual Fund. “Absence of overseas investors and excess supply have led to a spike in 91-day treasury bills. Availability of money at a fixed rate (8 per cent) has contracted,” he said.
“Investors are trying to price T-bills in respect of term repos,” said Dwijendra Srivastava, head of fixed income at Sundaram Mutual. “Three-month treasury bills are tracking the same spread over and above term repos, which may have turned out to be the operating rates,” he said. The gap or spread between term repo and T-bills has been hovering about 50-75 basis points, which was earlier the spread between overnight repo and T-bills. In April, threemonth T-bills quoted cut-off yields in the range of 8.86-8.94 per cent in weekly auctions.
In its first bi-monthly policy on March 31, the Reserve Bank reduced banks’ borrowing limit under overnight repo by half to 0.25 per cent of total deposits while increasing the cap under seven-day and 14-day term repos to 0.75 per cent from 0.5 per cent. This means, the overnight repo caters to only a portion of refinancing and, hence, it cannot remain the main operating rate, which is currently hovering between 8-9 per cent depending on money demand, dealers said.
Lenders are now tapping term repo borrowings. The weighted average rates for three-day, 13-day and 15-day repos were 8.22 per cent, 8.39 per cent and 8.12 per cent, respectively, according to the latest RBI auction data. “Effective overnight rates have moved up due to the shift in amounts available under overnight repo window vis-avis the term repo window,” said Amit Tripathi, head of fixed income at Reliance Mutual Fund. “Absence of overseas investors and excess supply have led to a spike in 91-day treasury bills. Availability of money at a fixed rate (8 per cent) has contracted,” he said.
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