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The last weekly auction of Government Securities (G-Secs) in the current financial year sailed through, but the yield curve became inverted, with the cut-off yield on the six-year and 13-year papers coming in higher than the 39-year paper.
The cut-off yield on the six-year paper (7.10 per cent GS 2029) and 13-year paper (7.41 per cent GS 2036) was 7.4015 per cent and 7.4527 per cent, respectively, while that on the 39-year paper (7.40 per cent GS 2062) was lower at 7.3822 per cent at the auction.
The government mopped up ₹26,000 crore through the auction of the aforementioned papers.
Impending slowdown
Inversion in the yield curve means yield on the shorter and medium term G-Secs exceed the longer term ones. “In the US, the curve has been inverted over the last six months or so... In India, too, the curve has just got inverted. Market players are convinced that in the long-run, fundamentals are good but there are short-term challenges such as inflation and global macroeconomic headwinds,” said Ajay Manglunia, MD & Head, Investment Grade Group, JM Financial.
He said an inverted yield curve occurs in a recessionary environment. It indicates low growth or a step towards recession.
Rama Chandra Reddy, Deputy General Manager (Head-Treasury), Karur Vysya Bank, said “It (the inversion in yield curve) also denotes that we are at the peak in the interest rate hike cycle.”
Revised calendar
The Reserve Bank of India, in consultation with the government, announced a revised calendar for March for auction of Government of India Treasury Bills. The government will be borrowing ₹1.95-lakh crore next month via T-Bills against ₹1.45-lakh crore notified in the earlier calendar.
RK Gurumurthy, Head-Treasury, Dhanlaxmi Bank, said generally, long-dated bonds are bought by insurance companies and medium- and short-dated bonds by banks. “Banks will shy away from duration for some time until they have clarity on the borrowing calendar and also on how liquidity will be in the next few months,” he said.
So, the additional T-Bill issuance comes in this backdrop.
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