MUMBAI: In a development that signals a slowdown in the economy, the yield on the 364-day treasury bill (T-bill) on Wednesday surpassed the 10-year government bond yield.
A combination of high supply of short-term government bonds (T-bills), tight liquidity in the banking system and uncertainty over rate hikes pushed up near-term yields. In less than two months, short-term yields have risen by more than 60 basis points (100bps = 1 percentage point), while 10-year yields have risen by 12bps, according to RBI data.
This phenomenon is known as yield inversion and in developed markets it usually indicates recession. Economists have ruled out such a situation in India, however, a recession can be expected.
At Wednesday’s T-bill auction, the cut-off yield rose to 7.48% from 7.39% last week and 7.06% a month ago. In comparison, the 10-year yield had closed at 7.34% a month ago, while it closed at 7.46% on Wednesday.
On February 24, the government said it would borrow Rs 50,000 crore more through T-bills than notified earlier. Moreover, the surplus liquidity available in the banking system is around Rs 50,000 crore, down from Rs 11 lakh crore about 18 months ago.
“Tight liquidity and higher than expected supply of T-bills as well as the prospect of further rate hikes have kept near-term rates up,” said Siddhartha Sanyal, chief economist and head of research at Bandhan Bank.
Bond market players said short-term yields are more affected by system liquidity and central bank actions.
Economists, however, rule out any possibility of a slowdown in India. “An inversion of the yield curve is characteristic of an economy that is slowing down. Theoretically, such an event is seen as the beginning of a recession,” said Madan Sabnavis, chief economist, Bank of Baroda. “While Not so here, a recession is imminent as RBI cuts growth projections for FY24 to 6.4% from 6.8% in FY12.
A combination of high supply of short-term government bonds (T-bills), tight liquidity in the banking system and uncertainty over rate hikes pushed up near-term yields. In less than two months, short-term yields have risen by more than 60 basis points (100bps = 1 percentage point), while 10-year yields have risen by 12bps, according to RBI data.
This phenomenon is known as yield inversion and in developed markets it usually indicates recession. Economists have ruled out such a situation in India, however, a recession can be expected.
At Wednesday’s T-bill auction, the cut-off yield rose to 7.48% from 7.39% last week and 7.06% a month ago. In comparison, the 10-year yield had closed at 7.34% a month ago, while it closed at 7.46% on Wednesday.
On February 24, the government said it would borrow Rs 50,000 crore more through T-bills than notified earlier. Moreover, the surplus liquidity available in the banking system is around Rs 50,000 crore, down from Rs 11 lakh crore about 18 months ago.
“Tight liquidity and higher than expected supply of T-bills as well as the prospect of further rate hikes have kept near-term rates up,” said Siddhartha Sanyal, chief economist and head of research at Bandhan Bank.
Bond market players said short-term yields are more affected by system liquidity and central bank actions.
Economists, however, rule out any possibility of a slowdown in India. “An inversion of the yield curve is characteristic of an economy that is slowing down. Theoretically, such an event is seen as the beginning of a recession,” said Madan Sabnavis, chief economist, Bank of Baroda. “While Not so here, a recession is imminent as RBI cuts growth projections for FY24 to 6.4% from 6.8% in FY12.
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