The Reserve Bank of India, on Wednesday, rejected all bids received for the 91-day Treasury bill (T-bill) for the first time since February 2016.

T-bills are short-term, zero coupon debt instruments issued by government. The RBI had auctioned ₹9,000 crore of the 91-day T-bill, ₹16,000 crore of the 182-day T-bill, and ₹14,000 crore of the 364-day T-bill on Wednesday.

Bids for the 91-day T-bill were over five-fold the notified amount. While higher bids usually indicate strong demand for a security, bidders likely demanded much higher yields for the paper due to year-end liquidity constraints, which the RBI was uncomfortable with, said market participants.

The cut-off yield on the 91-day T-bill is estimated to be higher than the expected level of around 7.15-7.20 per cent. Accepting bids at a higher level would have led to an inversion in the yield curve, something the central bank would like to avoid, they said.

The bank accepted all the bids received for 182-day and 364-day T-bills. The cut-off yield for the 182-day T-bills was set at 7.28 per cent, whereas for the 364-day T-bills was set at 7.31 per cent.

Lower participation by mutual funds due to year-end redemption pressures, sales by some funds at higher rates to meet these redemptions, and less appetite by banks for debt investments at the time of year-end balance sheet closing have added to the liquidity stress in the system, according to market participants.