What surprised debt markets besides RBI policy?

MUMBAI: Three investors that may have included state governments bought Treasury Bills worth Rs 10,500 crore a day before the central bank policy announcement, setting a recent record for bid quantity and helping post instant gains on the deal after Thursday’s surprise cut in borrowing costs.

The bills were sold in non-competitive bids that typically draw interest for Rs 2-10 crore worth of debt papers. In the recent past, only on two occasions the size of bids crossed Rs 1,000 crore.

Three state governments may have invested in the 364-day papers, multiple market sources told ET, which could not independently verify the names of those states.

Email query sent to the Reserve Bank of India (RBI), which conducted the auctions, remained unanswered until publication of this report.

“Some state governments had surplus money they needed to deploy into short-term investments,” said one of the persons cited above. Those papers yielded 6.78%.

On Tuesday, 19 states collectively raised Rs 24,956 crore by selling bonds, popularly known as state development loans (SDLs). Uttar Pradesh raised the highest at Rs 3,000 crore, while Bihar, Karnataka, and Haryana mopped up Rs 2,000 crore each.

States normally bunch up their borrowings toward the end of the financial year as they look to exhaust their limits. The money could be used later in different projects, said another executive working with a large bank.

After the RBI’s surprise policy rate cut, Treasury Bills rallied about 15-20 basis points in the past two trading sessions. The newly issued one-year paper yielded 6.55% Friday, translating into mark-to-market notional gains for investors, dealers said.

Under non-competitive bids, state governments or foreign central banks normally buy New Delhi’s sovereign papers, prices of which are not derived through typical auctions. Nepal Rastra Bank is one such overseas regulator investing in Indian sovereign papers. Nepal imports oil from Indian refineries: Hence, it keeps money in rupee terms instead of in dollars.

Non-competitive bids typically don’t involve huge purchases.

For example, one bid in January 2018 was for Rs 9,700 crore of sovereign papers yielding 6.58%. On October 10, one auction saw two non-competitive bids for Rs 1,050 crore.

“From a trading point of view, the purchases last Wednesday demonstrated great skills as they came just before the rate cut. But the purpose could have been different,” said a trader at a large financial institution.