The Reserve Bank of India’s weekly treasury bill auction on Wednesday priced the front end of the sovereign curve well below the levels state governments balked at a day earlier. The 91 day bill cut off at a yield of 5.9337 percent, the 182 day at 6.5493 percent and the 364 day at 6.6900 percent, with weighted average yields of 5.9094 percent, 6.5140 percent and 6.6391 percent respectively.
Competitive demand was solid without being full at the notified amounts. Bids totalled 15,676.740 crore for the 91 day bill, 21,225.170 crore for the 182 day and 15,310 crore for the 364 day, against notified amounts of 8,000 crore, 8,000 crore and 7,000 crore. The bank accepted 7,600 crore, 7,600 crore and 6,650 crore of competitive bids, with partial allotment at the cut off of 97.1013 percent, 52.7415 percent and 54.4444 percent.
The non competitive segment is where the size sits. Non competitive bids accepted were 25,741.400 crore in the 91 day bill, against only 25,802.082 crore bid, dwarfing the competitive allotment at that tenor, with 2,990 crore accepted at 182 days and 2,350 crore at 364 days. That is the official and mandated bid that routinely anchors the shortest bill, and it leaves the competitive cut off as a price set at the margin of a much larger captive flow.
Read against Tuesday’s state auction, covered in yesterday’s edition, the spread is the story. States allotted only 18,963 crore of 23,300 crore notified, with four states rejecting tranches outright and accepted cut offs between 8.15 and 8.28 percent. The sovereign funds for a year at 6.69 percent; its own states pay roughly 150 basis points more, and at the margin will not pay it.