All eyes were on the Reserve Bank of India (RBI) this week as bond investors looked to continue their joyride on the back of the central bank's repo rate hikes. Interestingly, the central bank's repo rate announcement on Thursday coincided with its weekly release of the auction schedule for government securities.
This week, the auction announcement for Treasury bills (T-bills) and state government bonds or state development loans (SDLs) came a day early due to the extended weekend for Good Friday.
RBI has kept the repo rate unchanged for now at 6.5 per cent. Announcing the decision after its monetary policy committee (MPC) meeting on Thursday, RBI said it is a “pause and not a pivot”, leaving the door open for future rate increases.
RBI's repo rate announcements have grown from a mundane official affair to a big public event of late due to the corresponding increase in T-bill and SDL yields with fair regularity, fuelled by successive repo rate hikes, attracting more investors.
Indicative Yields For Next Week’s Auction
RBI has set the indicative yield for T-bills of one-year maturity at 7.06 per cent for next week’s auction. The central bank issues T-bills with a maturity of three months, six months, and 364 days. This time, however, the indicative yield for three-month and six-month maturities are 6.76 per cent and 7.04 per cent, respectively, slightly lower than in recent weeks.
In addition, four states have issued state government bonds for next week’s auction: Assam, Nagaland, Maharashtra, and Punjab. While Maharashtra has the shortest duration of five and seven years, the rest are offering 10-year maturity.
Likewise, Nagaland is offering the highest indicative yield of 7.69 per cent, followed by Assam at 7.65 per cent, Punjab at 7.63 per cent, and Maharashtra at 7.51 per cent (7 years) and 7.47 per cent (5 years).
Of late, yields on government securities have increased considerably, in line with the RBI’s repo rate hikes. Banks have also increased their deposit rates to keep the liquidity running in the backdrop of higher loan costs which may have repelled some borrowers. While some experts believe RBI’s rate hike cycle may have reached its last leg, the eventual rate cuts could still be far away, given the central bank’s observation on Thursday that its rate decision is simply a pause and not a pivot. Meanwhile, bond investors have a reason to celebrate because the higher the repo rate, the higher the potential yields of government securities.
