Reserve Bank of India Rejects Every Bid at a Treasury-Bill Auction as Short-Term Yields Surge

The Reserve Bank of India rejected every bid at its Treasury-bill auction on Wednesday, Oct. 21, 2026, accepting none of the 224 bids submitted for 23,000 crore rupees of 91-day, 182-day and 364-day bills and allotting no securities at all.

The auction result published by the central bank shows how complete the rejection was. The government had notified 8,000 crore rupees of 91-day bills, 8,000 crore rupees of 182-day bills and 7,000 crore rupees of 364-day bills, 23,000 crore rupees in total, equal to 230 billion rupees or about $2.43 billion at the exchange rate of $1 to 94.6350 rupees cited with the results coverage. Investors submitted 205 competitive bids worth 45,644.60 crore rupees - 67 bids worth 15,366.60 crore rupees for the 91-day bill, 63 bids worth 18,925.50 crore rupees for the 182-day bill and 75 bids worth 11,352.50 crore rupees for the 364-day bill - plus 19 non-competitive bids, for 224 bids in all. The amount accepted was nil for both competitive and non-competitive bids, no cutoff yields were declared, and the settlement that had been scheduled for Thursday, Oct. 22 did not proceed on the rejected sale. The central bank's statement gave no reason for accepting no bids.

The yields on offer had run well ahead of last week's sale

The rejection followed a rapid repricing at the short end. At last week's auction, the central bank sold 91-day bills at a cutoff yield of 5.73%, 182-day bills at 6.29% and 364-day bills at 6.49%. A poll of market participants conducted before Wednesday's sale had forecast cutoffs of 5.85% for the 91-day bill, 6.42% for the 182-day bill and 6.60% for the 364-day bill, and one trader at a large state-run bank said banks had bid at yields at least 15 basis points higher than at the previous week's auction. Over the five weeks to Oct. 14, cutoff yields on the three maturities had already jumped by 64 basis points, 83 basis points and 69 basis points respectively, and the spread between the 364-day bill and the policy rate reached 99 basis points last week, a four-year high. Traders said the cutoff yields at Wednesday's auction likely came in above the central bank's expectations.

A trader at a private bank said: "Demand may have been poorer than anticipated and with the government not in serious need of funds, cancellation was a better signal." Avnish Jain, chief investment officer for fixed income at Canara Robeco Mutual Fund, said: "Markets are expecting at least another 75 basis points of rate hikes and people are now on the negative side, which is leading to more cautious bidding for bills." Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, said: "A probable reason for the rejection is that the bids would have been at higher yields," adding that the market is also talking about more rate hikes by the central bank, which weighs on shorter-maturity notes.

Oil, a bond selloff and a much smaller liquidity surplus

The auction sat inside a broader selloff in Indian government debt. The benchmark 10-year yield closed at 7.44% on Wednesday, up 5 basis points from its previous close of 7.39%, its highest level since March 2023, and 10-year yields have climbed around 24 basis points this month. Five-year yields have jumped 30 basis points since the end of September. Benchmark Brent crude stayed above $110 a barrel after nearing $112 on Tuesday, its highest in five months; Indian markets were shut on Tuesday for Dussehra, and oil was at $107 a barrel when markets closed on Monday. Anshul Chandak, head of treasury at RBL Bank, said the market was clearly signaling a 50 basis point hike in December and read the auction rejection as part of the same signal. Puneet Pal, head of fixed income at PGIM India Mutual Fund, said Treasury-bill yields could rise further given the selling pressure in longer-maturity notes.

Liquidity conditions have tightened at the same time. The central bank has drained liquidity worth more than 1 lakh crore rupees through bond sales and large foreign-exchange swaps since last month, mopping up a surge of funds from a diaspora deposit program, and the banking-system surplus was 570 billion rupees as of Oct. 20, far lower than 5 lakh crore rupees at the beginning of the month. Dealers said a healthy government cash balance, calculated at more than 5 trillion rupees at the end of September, left the government under no pressure to borrow at the yields on offer, while competing demands on cash, including a marquee initial public offering that opened on Wednesday, thinned participation from mutual funds.

A rejected sale is not a missed payment

Wednesday's outcome was a refusal to allot new securities, not a failure to pay on existing ones: no Treasury bills were issued at this auction, and outstanding bills are unaffected. It was also not without precedent. The central bank rejected bids for all three tenors at the end of March, making Wednesday the first rejection of an entire Treasury-bill sale in seven months, and it canceled the 182-day and 364-day auctions in June. What to watch next is whether the next weekly sale is allotted and at what cutoff yields, whether the central bank accepts the higher short-term yields the market is now demanding or keeps pushing back against them, and how the December rate expectations embedded in bill bidding evolve from here.