Weak demand pushes Treasury bill yields to over one-year highs; 10-year bond yield seen at 7.30-7.45%: ICICI Bank

What happened

Yields on government Treasury bills rose to their highest levels in more than a year because of weak investor demand. The 91-day yield rose to 5.93 per cent, the 182-day yield to 6.55 per cent, and the 364-day yield to 6.69 per cent.

Confirmed

Global impact / market context

Higher Treasury bill yields raise the cost of short-term government borrowing and can lift interest costs for companies and households that borrow at market-linked rates, while giving savers better returns on short-term government paper.

Analyst inference

ICICI Bank said weak auction demand and tight liquidity, meaning cash available in the banking system, pushed short-term yields higher while long-term yields edged lower, steepening the yield curve. It expects the 10-year bond yield at 7.30-7.45 per cent.

Analyst inference

What to watch

1. The Centre raised Rs 33,000 crore in the government securities auction, and demand varied across maturities. The bid-to-cover ratio, which compares bids received with the amount offered, was 1.74 across the three Treasury bill tenors. Confirmed
2. ICICI Bank expects the 10-year benchmark government bond yield to trade in the range of 7.30-7.45 per cent in the near term, which means the bank proposed a specific trading band for investors to watch. Proposed
3. Watch whether banks and mutual funds step up buying, since their demand was subdued despite likely purchases, and whether tight cash conditions ease. Stronger demand could lower bill yields and borrowing costs. Analyst inference

Evidence

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