10-Year Yield Droops Anew As Securities Rally

Government security prices surged by more than a rupee at the medium and long end as the market remained flooded with liquidity. Call rates continued in the 6.50-6.80 per cent range.

Government security prices rallied throughout the day and the yield on the 10-year paper closed at 8.32 per cent (8.45 per cent).

A primary dealer said, "The Rs 4,000 crore outflows yesterday on account of the 14-year paper auction appeared to be a minuscule amount compared to the current liquidity situation. Moreover, as the cut-off yield in yesterday's auction was slightly lower than the market expectation, trading at the longer end was encouraged."

Call rates opened in the 6.60-6.80 per cent band and dipped during the day to close in the 6.50-6.60 per cent range on the back of low demand.

A dealer with a private sector bank said, "There was hardly any demand in the market. Banks -- both private and public sector -- are flooded with liquidity, but short of deployment opportunity. This has been keeping call rates in the 6.50-6.75 per cent range."

The Reserve Bank of India continued to get high bids at its repo auction. Today the apex bank received four bids worth Rs 7,260 crore and accepted all the bids at a cut-off rate of 6.50 per cent. There was no bids at the reverse repo auction.

Call rates may continue in the 6.50-6.75 per cent band tomorrow despite the Rs 2,000 crore worth five-year floating rate bond auction. Government security prices will continue to rally at the medium and long end, while short-end papers will remain quiet. Dealers said that short end papers will rally only after the floating rate bond auction.