Auction Notice Hauls Up Longer Gilts, Call Staid

The auction announcement by the Reserve Bank of India (RBI) pushed the long tenure government security prices by 35-40 paise today. Call rates remained in the 6.40-6.75 per cent range on the back of ample liquidity in the banking system.

Today government security prices opened 20-25 paise higher than yesterday's closing and went up by another 30-35 paise later. However, profit-booking pushed down the prices a bit in the afternoon.

A dealer with a private sector bank said, "The auction will be at the longer end of the market where currently the buying interest is. As the auction is just for Rs 5,000 crore, it will have little impact on liquidity condition. These factors boosted the sentiment in the market."

Call rates continued to remain soft in the absence of demand for funds. Overnight rates opened around 6.60-6.75 per cent, but slipped to close around 6.40-6.60 per cent.

A dealer said, "Banks are flushed with liquidity and deploying them is a problem. This is resulting in low demand for overnights."

The lower fund demand also resulted in lenders directing money to the repo auction. The RBI received three bids of Rs 10,200 crore in the one-day repo auction. The apex bank accepted all the bids at a cut-off rate of 6.50 per cent.

In the government securities market, prices are likely to move up by 20-25 paise at the medium and long end of the market. Dealers, however, are expecting profit-booking at the higher level as the prices are already close to their highest level. As the liquidity condition will remain good, call rates are expected to hover around the refinance rate of 6.50 per cent.