T-bill yields remain steady, CP rates fall

Participation at T-bill auctions improved, with greater stability expected in call money rates. Both the 14-day and the 91-day cut-off rates were steady at 7.84 per cent and 8.77 per cent. Across the year end short-term CP rates declined sharply. April-99 CP rates declined from 10.5 per cent to 9-9.25 per cent, while three month rates declined from 10.5 per cent to 10 per cent.

Short-end bias continues

With the 12 per cent 1999 maturing on April 7, (Rs 4,417 crore), the auction process is expectedto begin. Market demand for short and medium-end securities increased as RBI removed the sale quotas of 11.15 per cent 2002 and 11.98 per cent 2004 from its OMO list. Buying interest at this end seems to confirm market belief that auction announcements in the beginning would be concentrated at the long-end, thereby leaving room for appreciation at the medium-end. However, we do not expect significant appreciation unless the yield curve steepens, as a result of decline at the short-end. The long-end would be strained over the next few weeks by auction announcements. We, therefore, continue our bias at the short-end, with a 20 per cent weight in the 3-4 year maturity bucket.

Expected maturity profile

The `much-awaited' sovereign borrowing programme for fiscal 1999-2000 is expected to get underway this week. Given the outstanding maturity profile of existing debt, we expect a decided shift toward long-dated securities. Considering the medium-term liquidity balance in the banking system, short termtightness would again be dealt with a combination of private placements and shorter tenure issuances by the RBI.