Auction Buzz May Curb Initial Gilts Rally

Prices of government securities are likely to rally during the initial part of the week, but may fall later on following an auction announcement by the Reserve Bank of India.

According to dealers, the 10-year paper yield is likely to test the 7.50 mark. Over the week, prices of long-term papers, that is, of more than 10-year maturity, are likely to go up by 45-50 paise, while at the shorter-end prices can go up by 20-25 paise.

A dealer with a private bank said: "As liquidity is good, the prices should open higher on Monday. However, as the government is likely to borrow another Rs 20,000-25,000 crore from the market over the next couple of months, we expect an auction during the week. This will stem the rise in the government security prices."

The auction which is expected to be in the range of Rs 6,000-8,000 crore is likely to receive good response.

A primary dealer said: "There is enough liquidity for auctions below Rs 10,000 crore. It will not be surprising if the auction receives more than 100 per cent oversubscription."

Another dealer with a private bank, however, said: "Prices have increased too much over the past couple of weeks. That's why the rise will be slower during the week and the market will observe profit-booking at every level."