RBI Rejects All Bids at 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, a rare step that traders said showed the central bank is uneasy with how fast short term yields have risen in recent weeks.

The government had planned to raise 230 billion rupees, about $2.43 billion, by selling 91 day, 182 day and 364 day treasury bills, Reuters reported. Bloomberg also reported that the RBI turned away all bids at the sale, in a session marked by a wider selloff in Indian bonds. Traders told Reuters the cutoff yields investors demanded likely came in above what the RBI was willing to accept.

Yields have climbed for five weeks

Short term yields have moved up steadily. In the five weeks to Oct 14, 2026, the cutoff yield on the 91 day bill jumped 64 basis points, the 182 day yield rose 83 basis points, and the 364 day yield rose 69 basis points, according to Reuters. The spread between the 364 day bill and the RBI policy rate reached 99 basis points last week, the widest in four years.

Last week the RBI sold 91 day bills at 5.73 percent, 182 day bills at 6.29 percent, and 364 day bills at 6.49 percent. A Reuters poll of traders on Wednesday had expected this week cutoff yields of 5.85 percent, 6.42 percent, and 6.60 percent for the three maturities. Bids at the auction appear to have come in higher than that.

"Demand may have been poorer than anticipated and with the government not in serious need of funds, cancellation was a better signal," a trader with a private bank told Reuters.

Traders expect more rate hikes

Avnish Jain, chief investment officer for fixed income at Canara Robeco Mutual Fund, told Reuters that markets are expecting at least another 75 basis points of rate hikes, and that the negative mood is making investors bid more cautiously for bills. When investors expect the central bank to raise rates, they demand higher yields on short term government paper, and the RBI has now pushed back against that pricing twice in a short span.

Wednesday was not the first time this year the RBI has stepped away from an auction. It cancelled the 182 day and 364 day auctions in Jun 2026, and it rejected bids for all three tenors at the end of Mar 2026, Reuters said. The RBI official auction notice for Oct 21 listed 8,000 crore rupees of 91 day bills, 8,000 crore of 182 day bills, and 7,000 crore of 364 day bills, for a total of 23,000 crore rupees, with settlement set for Oct 22, 2026. Rejecting every bid means the government raised none of that money on Wednesday, and the central bank sent a clear signal that it will not fund the government at any yield the market asks for.