12.59% 2004 Paper Sails Through

The open market auction of the 12.59 per cent 2004 government paper, conducted by the Reserve Bank of India today, was oversubscribed by 68.3 per cent on the back of ample liquidity in the system.

The central bank received 99 bids worth Rs 8,415.99 crore, of which it accepted 28 bids aggregating to the notified amount of Rs 5,000 crore. The cut-off price for the auction was set at Rs 112.25 equivalent to an estimated yield of 7.83 per cent.

Liquidity has been comfortable in the money market since the beginning of this fiscal. This was due to the huge deposit mobilisation by the commercial banks. This was also reflected in the rally of government security prices. The auction was a measure to suck out excess liquidity from the market and to bring stability to the interest rates in the government securities market.

A chief dealer of a private sector bank said, "There was already a sentiment in the market that the yields of the government papers were due for a correction. But, as there was liquidity overhang in the market, yields have been going down continuously. Today's open market auction helped the require correction to take place."

Prices of government securities fell more than a rupee at the longer-end of the market, while at the medium-end the dip was in the range of 70-80 paise.

The yield of 10-year paper rose to 9.40 per cent from its all-time low of 9.20 per cent today.

Dealers feel that auction of a short-term paper will increase the interest rates of the shorter-term papers.

A treasury head of a private sector bank said, "Already, there has already been a shift in the interest rates of shorter-term papers in the past one week. The auction will encourage it further."