(Bloomberg) -- For a second week in a row, just a few buyers lapped up a sale of Treasury bills in India, fueling speculation of purchases by the nation's central bank.
A government auction of 450 billion rupees ($5.9 billion) on Wednesday beat all expectations, with the notes for three tenors sold at the lowest yields in more than a decade.
“It's difficult to see commercial interest for the longer Treasury bills at these yield levels,” said Suyash Choudhary, head of fixed income at IDFC Asset Management Co. “If Reserve Bank of India was the buyer, then one can probably assume that deficit monetization in some form may have already started.”
The results are again fueling debate over the role of the RBI as Prime Minister Narendra Modi's government starts a record-borrowing plan. Calls for the central bank to do more to support the nation's 60 trillion rupees debt market are growing as traders get increasingly worried about a deluge of issuances.
The RBI has so far refrained from large-scale purchases of bonds, and a law forbids them from directly buying debt at auctions. A spokesman for the central bank didn't immediately respond to an email seeking comments.
Data released late Wednesday showed that buyers in a category called ‘Others' bought 303.7 billion rupees of bills, the highest-ever single-day purchase. The central bank is among those in that group, though there's no breakdown of the results.
The winning bids were below the central bank's overnight policy rate of 4.4%, and the reverse repurchase rate of 3.75%, which banks get for parking excess cash with the RBI.
Cash Crunch
The auction results spurred a rally in short-end debt. The yields on the 7% 2021 bond plunged 25 basis points on Wednesday, while they dropped 14 basis points for the 6.18% 2024 debt.
With the country in lockdown due to the pandemic, the government is trying to manage a liquidity crunch with a lot more short-term borrowings. It will sell 4.5 trillion rupees of bills for the rest of April-June, at least 50% more than previously announced, according to a statement last week.
Here are the details on the auction results:
| Treasury Bill | Cut-Off Yield | Bid-To-Cover Ratio | Estimate | Cut-Off at Previous Sale |
| 91-Day | 3.7297% | 6.14 | 3.85% | 4.1493% |
| 182-Day | 3.6553% | 8.52 | 4% | 4.3201% |
| 364-Day | 3.7393% | 8.17 | 4.05% | 4.3751% |
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