Higher returns lure primary dealers to 91-, 182-day T-bills

In absolute terms, PD investment rose to Rs 25,383 crore as on January 26, 2024, in 91-T-bill from Rs 18,178 crore as on January 27, 2023

Higher returns on treasury bills (T-Bill) over the last one year has attracted primary dealers (PD) towards these securities. This has resulted in a 40 percent on-year rise in their investments in 91-day and 24 percent in 182-day T-bills, according to the Reserve Bank of India's (RBI) March bulletin data.

In absolute terms, PD investment rose to Rs 25,383 crore as on January 26, 2024, in 91-T-bill from Rs 18,178 crore as on January 27, 2023. Similarly, 182-day T-bills investments stood at Rs 69,518 crore as on January 26, 2024, compared to Rs 56,129 crore as on January 27, 2023.

“PDs have been taking advantage of higher T-bill rates for three months and six month as this segment reacts promptly to the extreme tight liquidity situation which has been the case throughout the year,” said Mataprasad Pandey, vice president, Arete Capital Service.

According to Vijay Sharma, senior executive vice president at PNB Gilts, holdings in 182-day T-bills are higher than that of 364-day ones, the reason being the lower issuance in the case of the latter.

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Why returns increased

Over the last one year, yield on T-bills in the primary auctions has soared, especially the shorter-tenure ones such as 91-day and 182-day bills, due to persistent higher deficit liquidity in the banking system.

The cut-off yield on 91-day T-bills has increased by 55 basis points (bps) over one year, while that of 182-day and 364-day bills saw a rise of 33 bps and 27 bps, respectively.

But, since the start of March, liquidity conditions in the banking system have improved due to government spending and other inflows into the system. This also led to fall in overnight rates to near or below the repo rate.

Liquidity in the banking system is in deficit of around Rs 54,284.03 crore, as per the RBI’s money market operation data as on March 19.

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Other investors

State governments, which are also investors in T-bills, have reduced their exposure to all three maturities, paring it by 41 percent in 91-day, 44.41 percent in 182-day and 3.1 percent in 364-day T-bills.

On the other hand, banks have increased their investment in 182-day bills by 17.33 percent and in 364-day by 5.45 percent. However, their collective holding was lower by 27.7 percent in 91-day bills.

Money market experts said PDs may continue to invest more in T-bills as long as liquidity remains in deficit. This is because higher liquidity usually pushes up short-term debt instrument rates, making them attractive for investors.

“Till system liquidity is in deficit, we may continue to see this trend,” Pandey added.