Government to adjust T-bill issuance for cash management: Report

The government plans to manage its cash position by adjusting Treasury bill (T-bill) sales rather than altering the bond auction schedule, two government officials told Reuters. This approach is preferred because it is more flexible and avoids market disruption, explained Finance Secretary T.V. Somanathan on Wednesday.

In the budget presented on Tuesday, the government reduced its bond borrowing by Rs 12,000 crore for the fiscal year ending March 2025 and cut T-bill issuances, resulting in a net inflow of Rs 50,000 crore into the banking system.

Another government official, who requested anonymity as he is not authorised to speak to the media, stated that lowering T-bill borrowings is preferable to avoid market volatility.

Somanathan mentioned that the government expects bond yields to remain around current levels, potentially decreasing slightly. "I am not able to foresee anything beyond 2-3 years," he added.

Investors anticipate India’s bond yield curve to steepen, with reduced T-bill supply pushing short-term bond yields lower compared to long-term yields. T-bill yields, which mature within a year, fell by 3-4 basis points following the budget announcement, and traders expect a further decline. India's five-year bond yield decreased marginally to 6.89 per cent, while the benchmark bond yield was at 6.96 per cent.

"Since most of the reduction in fiscal deficit is from a cut in T-bill supply, I expect the yield curve to steepen and most of the action will shift to the short end, mainly the three-five year segment," said Vikas Goel, Managing Director at PNB Gilts.

Yields on bonds up to five years are expected to ease by 10-12 basis points, and the spread with the benchmark bond yield will widen as "bull-steepening is the order of the day," Goel added.

(With Reuters inputs)