Auction Cut-Off Price Seen At Rs 101.50-65

The cut-off price for the Rs 5,000 crore auction of 9.39 per cent 2011 paper is likely to be in the range of Rs 101.50 to Rs 101.65. The yield will be in line with the secondary market price of the paper.

The security, which is considered to be an illiquid stock, was traded in a range of Rs 101.53 to Rs 101.65 today.

With tomorrow's auction, the Reserve Bank of India (RBI) will complete more than 58 per cent of the Centre's gross borrowings programme of Rs 1,19,770 crore for the current fiscal.

Money market dealers welcomed the RBI move. "There has been a 10-15 paise gap between the yields of liquid and illiquid stocks of similar maturity. The move by the central bank will lower the differential," said a dealer with a private sector bank said.

"There is no appetite for papers with more than 10-year maturity and, hence, an auction at that end would have affected the market sentiment," he added.

Dealers said the market has enough liquidity to absorb the auction. The treasury head of a nationalised bank said: "There will be inflow of Rs 6,000 crore on account of redemption of government security and coupon payments and, hence, we expect the auction to be oversubscribed once again."

Government security prices went up by 10-15 paise at the short-to-medium end of the market today, despite the auction announcement.

Dealers said that, as the paper to be auctioned is an illiquid stock, it brought some interest for such papers. They expect prices to rally in the 5-10 year maturity segment after the auction.