Centre takes knife to T-bill issuances; short-term borrowing costs to ease
Treasury Bills in the Budget.
With the reduced supply of sovereign Treasury Bills seen bringing down their yields, cost of borrowing for firms is correspondingly set to fall as rates on debt instruments such as certificates of deposits and commercial papers are benchmarked to the government’s T-bills.
“In a way it’ll lead to some re-rating at the short-end and the (sovereign) yield curve should steepen because T-bill supply is coming down. At the margin, I would think that the yield curve could steepen by maybe 5-10 basis points between the 2-year and 10-year points,” said Shailendra Jhingan, MD, CEO, ICICI Securities Primary Dealership.
In the full Budget for FY25, the Centre pegged its short-term/T-bill borrowings at (-) Rs 50,000 crore. The figure had been pegged at Rs 50,000 crore in the Interim Budget presented in February. A Rs 2.11 lakh crore surplus dividend transfer by the RBI to the government this year and a build-up in the Centre’s cash balances during the elections provided the room for the cut in short-term borrowing, analysts said.
“The reduction in T-bill borrowing is definitely a positive for the short-end and to that extent we will see some steepening in the yield curve as short-term yields fall. That brings down the cost of borrowing in that segment,” said Vikas Jain, head of India trading, fixed-income, currencies and commodities, Bank of America.
The yield curve steepens when short-term bond yields fall at a faster pace than long-term bond yields. A large portion of corporate borrowing
