RBI sells T-Bills worth Rs 5000 cr through OMOs

MUMBAI, NOV 16: The Reserve Bank of India sold an estimated Rs 5000 crore through the Open Market Operations (OMOs) in the fortnight ended N...

MUMBAI, NOV 16: The Reserve Bank of India sold an estimated Rs 5000 crore through the Open Market Operations (OMOs) in the fortnight ended November 15, ICICI-Securities said in its latest Debt Market update. This was mainly on account of a comfortable liquidity situation combined with attractive yields offered by the RBI.

“The total OMO sales in treasury bills during the fortnight is estimated at Rs 1072 crore and in dated securities at Rs 3412 crore. The RBI is believed to have exhausted its stock in most treasury bills and in the 12.25 per cent security maturing in 2008,” the report said.

According to I-Sec, the yield curve shifted onwards during the fortnight. “The strong liquidity in the system combined with the banks’ preference for short tenor assets has led to one year yields coming down to 10.25 per cent. The rally in the two and three year segments was capped by RBI’s OMO sale price. RBI is estimated to have about Rs 400 crore of 11.40 per cent security maturing in 2000”, the reportsaid.

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It added that the spread between the one year and the two year security has widened by about 30 basis points and a further rally is expected once the stock is exhausted. “The liquidity continues to be comfortable through the next fortnight and a rally in the two year is expected to extend to the three year segment. The best strategy at this time appears to overweigh the two and three year securiteies”, the report said.

The report noted that the interest in the treasury bill was strong during the fortnight. As a result the yields were lower in all three types of T-Bills. The 91 day T-bills was auctioned using the uniform price mechanism. The cut-off dipped from 10.03 per cent to 9.53 per cent to 9.36 per cent. The 14 day cut off has also dipped to 8.11 per cent. “With the repo rate at 8 per cent, any further drop in yields appear unlikely,” the report said.

The 50 basis points decline in the 91 day T-Bill cut off on November 6 sparked off a rally in short term corporate paper. P1+ rated CPyields between one and three months declined by 50-60 basis points.

“Primary issuances did not impact yields as they were entirely subscribed by one or two investors. The further decline of 17 basis points in the 91 day cut off on November 13 to 9.36 per cent spurred a further decline in yields by about 15 basis points. Considering the short term liquidity in the system we expect spread of three month corporate paper over the 91 day T-Bill rate to be between 110-120 basis points,” the fortnightly report said.