The Reserve Bank of India’s auction calendar this week showed a front end pricing patience and a long end pricing supply. Treasury bills sold at cut-off prices implying yields of 5.7281 percent for the 91 day bill, 6.2896 percent for the 182 day and 6.4891 percent for the 364 day, with the full notified amounts accepted: 8,000 crore rupees each of 91 and 182 day paper and 7,000 crore of the one year bill. Against a repo rate of 5.50 percent, the one year bill at 6.49 percent leaves essentially no easing priced over the next twelve months.
Liquidity operations told the same story from the other side. In the overnight variable rate reverse repo auction held on October 15, banks offered only 9,562 crore rupees against a notified 50,000 crore, and the full amount offered was accepted at a cut-off and weighted average rate of 5.49 percent. Thin bids to park cash at the central bank, at a rate just under the repo rate, point to a system running close to neutral liquidity rather than sitting on surplus.
The week’s state government securities auction, held October 13, showed where the term premium lives. States notified 31,200 crore rupees across 25 securities and allotted 30,005 crore, with cut-off yields clustered between 7.85 percent and 8.21 percent. Assam accepted only a partial 805 crore of its 1,000 crore 11 year line, and Gujarat accepted nothing on its 12 year security, the two soft spots in an otherwise covered sale. Long dated state paper above 8 percent, against a 6.49 percent one year central bill, is a spread of more than 150 basis points for sub-sovereign duration.
Friday brings the centre’s turn: an underwriting auction for 34,000 crore rupees of government securities for sale on October 16, including the 6.94 percent GS 2036 re-issue flagged in the calendar earlier this week. The RBI’s operations, taken together, describe a curve that is orderly at the front, fully priced for a hold, and still charging states a heavy price to borrow long.