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Informist, Wednesday, Sept. 16, 2026

--364-day T-bill cut-off yield of 6.0386% at auction highest since Apr 2025

NEW DELHI – The cut-off yield on the 364-day Treasury bill at Wednesday's auction hit the highest since April 2025 as investors demanded higher yields, expecting repo rate hikes and further durable liquidity withdrawals by the Reserve Bank of India, dealers said. The rise in the 364-day T-bill's cut-off comes only a week after throwaway money market rates pulled down the 91-day T-bill's cut-off yield to a four-year low.

The RBI set the cut-off on the 364-day T-bill at 6.0386%, against 5.9148% last week. An Informist poll had pegged the cut-off at 5.99%, but the result blew past those estimates as banks demanded higher returns, expecting the RBI's Monetary Policy Committee to hike the repo rate from October, dealers said. The cut-off on the 91-day T-bill rose over 7 basis points from last week to 5.2801%, while the 182-day T-bill's cut-off was up 14 bps on week at 5.7500%, the highest since May. 

While expectations on the repo rate have not changed materially due to the release of inflation data for August on Monday, the defining change has been the RBI's decision to drain durable liquidity, dealers said. The central bank Friday said it would sell gilts worth INR 1 trillion in September through its first open market operation auction sales in five years. Net durable liquidity was in a surplus of INR 10.66 trillion on Aug. 31, according to latest data, which was the highest since December 2021. 

"What he has done is put in more supply for the market to deal with, and that will have an impact on every market segment," a dealer at a state-owned bank said. "We had already been seeing a divergence in money market rates in the CP-CD market; now, that is being reflected in T-bills also," the dealer said, referring to commercial paper and certificates of deposit. 

Surplus liquidity in the banking system – as measured by the RBI's net liquidity absorbed – remained near INR 10 trillion Tuesday, which helped limit the rise in the three-month T-bill's yields. OMO sales are seen as a slow-moving instruments to drain system liquidity, which might keep overnight rates comfortable in the near term, dealers said.

Traders are also unsure about subscription to the OMO sale auctions but fear additional measures could come in to further pull out liquidity in the next few months, pushing the 182-day and 364-day T-bills out of favour, dealers said. Economists at State Bank of India see a 50-basis-point repo rate increase at the December meeting of the MPC due to rising inflation. In a note on Tuesday, Systematix Group forecast a terminal repo rate of 6.50% in 2027, 125 bps higher than the current rate. 

"I think the market has been aware that the rates are only going to go up from here, it was only the pace which was the question," a dealer at a primary dealership said. "So, the gradual repricing has just been underlined by today's (T-bill) auction result." The 364-day T-bill's cut-off yield has risen for six straight weeks.  End

Reported by Aaryan Khanna

Edited by Avishek Dutta

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