91-day t-bill cut-off lowered to Rs 98.65

The Reserve Bank of India (RBI) today lowered the cut-off price at the 91-day treasury bills auction to Rs 98.65 from Rs 98.72 leading to a hike in the yield to 5.49 per cent - about 29 basis points up from 5.20 per cent last week.

One basis point is one hundredth of a percentage point.It also lowered the cut-off price at its fortnightly auction of 364-day treasury bills to Rs 94.54 from the previous Rs 94.71. At this price, the yield rose to 5.79 per cent from 5.60 per cent.

The yields on treasury bills firmed up by 20 basis points as primary dealers (PDs) did not participate in today's auction. A chief dealer with a state-owned bank said, "PDs should pay for today's treasury bill auctions by 30 September.

Banks will not lend to PDs then, on account of half-yearly closing. They would prefer to keep their capital adequacy in tact ahead of their book closing."

The spread between the one-year treasury bill and the actively traded 9-year bond has narrowed to 121 basis points from around 139 basis points yesterday.

Call rates also edged up to 5.90 per cent as all nationalised banks and some private sector banks had traded for the next five days. State-owned banks will be on strike on Thursday while all domestic banks will be closed on Friday on account of their half-yearly closing of their books.

The RBI mopped up Rs 20,415 crore by accepting 35 bids at one-day reverse repo auction under liquidity adjustment facility (LAF).

Call rates have touched new highs in the recent past on the back of cash crunch at the overnight call money market. The market witnessed an outflow of Rs 20,000-25,000 crore on account of advance tax. The liquidity, however, will ease once the government starts spending the excess cash supplies.

On the other hand, government securities recovered by 10-15 paise taking cues from the softening of yields on US treasury notes. The yield on the 7.37 per cent 2014 bond eased to close at 7 per cent from a four-week high of 7.04 per cent earlier in the session.

Money market dealers have started factoring in a 25 basis points increase in the central bank's key reverse repo rate when it reviews policy on October 26, taking the rate to 5.25 per cent. The US Federal Reserve has raised rates 11 times since June last year to 3.75 per cent.