Treasuries now offer nearly double what banks pay for term deposits

The rise in Treasury bill rates over the past few weeks has been so intense that at current yields, bond investors are getting nearly double what they could get from a bank for a term deposit of similar duration, according to the data.

Treasury bill yields posted their fourth straight week of steeper increases this week, with the benchmark 1-year bill yield hitting 12% after adding 85 basis points at the weekly primary bill auctions held on Wednesday.

There was heightened interest in the longer-dated note this week as subscriptions rose to just under Rs 1.2 billion, but bond investors still preferred the shorter duration and curve. short-term yield which remains inverted while the yield on the 3-month note has increased. at 12.10%, adding 75 basis points.

The Public Debt Department issued 56.5 billion rupees in bills, but subscriptions worth 71.1 billion rupees were received within the term of 3 months, and the Central Bank accepted 54.8 billion rupees under the same duration.

At the same time, the analysis of published term deposit rates of commercial banks showed that bank deposit rates are far from repricing their deposits in line with the sharp increase in bond yields and lending rates.

This was an issue that was also observed and highlighted by the Monetary Board. In its March 4 monetary policy statement, it acknowledged the significant lag effect of adjusting deposit rates in response to increases in other market interest rates.

For example, the 1-year term deposit rate of commercial banks always fluctuates between 6.50% and 9.00%, with the potential to go up to 10.0% in extremely rare cases.
Even banks encourage depositors with large amounts to buy 3-month treasury bills because of its attractive yields. Unless banks raise their deposit rates quickly, they could miss an opportunity to increase their holdings of government securities deposits.

With record levels of negative liquidity in the money market that have persisted for months, banks will have to offer attractive rates for their deposits.

However, if the banking industry becomes more conservative in growing its loan portfolio, it is unlikely to increase deposit rates at the rate it increases lending rates.

Industry analysts say it will be more of a margin game than a volume game going forward as banks become more cautious in new lending amid heightened concerns over the quality of their assets with the fallout from rising interest rates.

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