(Reuters) – The Indian government aims to manage its cash position by tweaking Treasury bills sales, if needed, instead of resorting to changes to the bond auction schedule, two government officials said.
It is easier to remain flexible and manage T-bill borrowing, as tinkering with bond auctions disrupts the market and traders want the government to stick to the borrowing calendar, T.V. Somanathan, finance secretary, told Reuters on Wednesday.
In the union budget on Tuesday, the government lowered borrowing through bonds by 120 billion rupees ($1.43 billion) for the fiscal year ending March 2025 while slashing Treasury bill issuances, which will result in a net inflow of 500 billion rupees into the banking system.
Another government official, who did not wish to be named as he is not authorised to speak to the media, said it is better to lower borrowings through T-bills, as it avoids market volatility.
The government assumes bond yields will remain approximately around prevailing levels, perhaps falling slightly, Somanathan said. “I am not able to foresee anything beyond 2-3 years.”
Investors expect India’s bond yield curve to steepen as the lower T-bill supply pushes short-term bond yields lower compared with long-term yields.
T-bills, which mature within a year, saw yields falling by 3-4 basis points after the budget, and traders expect a further decline. India’s five-year bond yield was down marginally at 6.89%, while benchmark bond yield was at 6.96%.
“Since most of the reduction in fiscal deficit is from cut in supply of T-bills, I expect the yield curve to steepen and most of the action will shift to short-end, mainly the three-five year segment,” said Vikas Goel, managing director at the primary dealer PNB Gilts.
Yields on bonds of up to five years are expected to ease by 10-12 basis points, and their spread with the benchmark bond yield will widen as “bull-steepening is the order of the day”, Goel said.
