New Delhi [India], November 3 : Yields on government Treasury bills have climbed to their highest levels in more than a year amid weak investor demand, while the domestic bond market is expected to remain sensitive to global developments and liquidity conditions, according to a report by ICICI Bank Research.
The cut-off yield on 91-day Treasury bills rose to 5.93 per cent from 5.73 per cent in the previous auction, while the 182-day yield increased to 6.55 per cent from 6.29 per cent. The 364-day yield also climbed to 6.69 per cent from 6.49 per cent.
“The cut-off yields across all tenors were at highest levels in over a year and were higher than estimates, reflecting weak demand at the auction,” the report said.
The weak demand was also reflected in the bid-to-cover ratio, which stood at 1.74 across the three tenors. ICICI Bank noted that demand remained subdued despite banks and mutual funds likely picking up some securities.
The domestic bond yield curve saw a steepening bias last week, with short-term yields moving higher amid weak Treasury bill auction demand and tight liquidity conditions, while yields at the longer end edged lower.
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.
In the government securities auction, the Centre raised Rs 33,000 crore, with demand varying across maturities. The bid-to-cover ratio stood at 2.4, below its long-term average of 2.8. Demand was relatively stronger for seven-year and 30-year bonds, while the three-year segment saw weaker interest.
Meanwhile, higher state government borrowing could keep spreads elevated. Twelve states are scheduled to borrow a combined Rs 29,900 crore this week, above the calendar amount of Rs 26,200 crore. ICICI Bank said the state development loan-government securities spread is expected to remain elevated.
On liquidity, the system surplus widened to Rs 1.6 lakh crore, or 0.6 per cent of net demand and time liabilities, by October 30, supported by government spending and government bond maturity.
The report said liquidity conditions should remain comfortable, with the reversal of a 30-day variable rate reverse repo operation also expected to provide support.
ICICI Bank further said global developments would guide market sentiment, with the US midterm elections and labour market data, including payrolls and unemployment figures, among the key events to watch.