Full Breakdown
RBI Rejects All Bids in Rs 23,000 crore Treasury-Bill Auction Amid Surge in Short-Term Yields
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Auction Outcome and Immediate Market Reaction
On October 21, the Reserve Bank of India (RBI) rejected every bid submitted for the government’s treasury-bill auction of INR23,000 crore (approximately $2.43 billion) covering 91-day, 182-day and 364-day maturities. Traders said the cutoff yields were likely above the RBI’s expectations, signalling the central bank’s discomfort with the recent rise in short-term borrowing costs.
Recent Yield Movements and Liquidity Context
Market data show that between September 9 and October 14, yields on the three tenors jumped by 64 basis points (bps), 83 bps, and 69 bps, respectively. The spread between the 364-day bill yield and the RBI’s policy repo rate widened to 99 bps, a four-year high.
Liquidity has tightened sharply. RBI data released after the auction indicated a net liquidity surplus of roughly INR48,303 crore in the banking system. The same day, the overnight variable-rate repo (VRR) auction attracted INR93,241 crore in bids against a notified amount of INR50,000 crore, pushing the weighted average call rate (WACR) to 5.64 %, just below the marginal standing facility (MSF) rate of 5.66 %.
Policy Background and RBI Stance
The RBI has been in “absorption mode” since July 29, tightening the daily cash reserve requirement from October 16 and absorbing net INR3.36 trillion on October 12 alone. Earlier in the year, the central bank raised the repo rate to 5.50 % and adopted a “calibrated tightening” narrative, indicating a willingness to raise rates further. The RBI cancelled the 182-day and 364-day auctions in June and had previously rejected all bids across the three maturities at the end of March.
Official Statements & Responses
- “Markets are expecting at least another 75 basis points of rate hikes and people are now on the negative side, which is leading to more cautious bidding for bills,” — Avnish Jain, CIO for fixed income at Canara Robeco Mutual Fund “Markets are expecting at least another 75 basis points of rate hikes and people are now on the negative side, which is leading to more cautious bidding for bills,” — Avnish Jain, CIO for fixed income at Canara Robeco Mutual Fund.
- A dealer at a primary dealership noted that the benchmark 10-year government-bond yield is likely to climb to 7.50 %, with crude oil prices and rising U.S. Treasury yields adding further pressure.
Market Outlook and Potential Rate Path
The surge in short-term yields has revived expectations of additional policy tightening. Analysts are pricing in a possible 50 bps hike in December, while the benchmark 10-year bond yield has already risen about 20 bps since the RBI’s policy announcement.
What’s Next
The RBI announced another overnight VRR auction of INR50,000 crore to be conducted on Thursday, indicating continued use of liquidity-adjustment tools as it navigates the tight funding environment.