India’s central bank rejected all bids at a sale of federal treasury bills on Wednesday amid a bond selloff that pushed borrowing costs to multi-year highs. The government was scheduled to sell treasury bills, which are short-term notes maturing within a year, worth 230 billion rupees ($2.4 billion). The Reserve Bank of India said in a statement that no bids had been accepted without providing any reasons.“A probable reason for the rejection is that the bids would have been at higher yields,” said Rajeev Pawar, head of treasury, Ujjivan Small Finance Bank. “Liquidity is almost neutral now and the market is also talking about rate hikes, which have greater transmission at the shorter end.”Benchmark 10-year bond yields have climbed around 24 basis points this month, rising to their highest since March 2023 on Wednesday, as elevated oil prices worsen inflation risks for India and raise prospects for further monetary tightening by the RBI.
The selloff has been more pronounced in shorter-tenure bonds, which are highly sensitive to rate expectations, with five-year yields jumping 30 basis points since end-September. The RBI recent efforts to contain inflation risks from excess banking cash have also weighed on sovereign bonds. The RBI has drained liquidity worth more than 1 trillion rupees via debt sales and carried out large-scale forex swaps since last month to mop up a deluge of funds from a diaspora deposit program.
The banking-system surplus cash was at 570 billion rupees as of Oct. 20, far lower than 5 trillion rupees at the beginning of the month.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing