Banks Set To Swarm 15-Year Gilt Auction

The Rs 5,000 crore 8.07 per cent 2017 government paper is expected to be oversubscribed at around 200 per cent. Money market dealers said there will be bids in the range of Rs 14,000 crore to Rs 15,000 crore for the paper, given the easy liquidity condition in the market.

Said a dealer with a private sector bank: "Rs 5,000 crore is too minuscule an amount. The banks do not have many other opportunities to park their money, and hence they will be interested in bidding for this paper."

Sentiment in the government security market was boosted after the auction announcement as dealers expected auction of a higher amount. The 10-year paper yield touched an all-time low of 7.17, and closed at 7.20. The yield of the 10-year paper closed at 7.25 per cent yesterday.

Money market dealers expect the cut-off price for the paper to be auctioned, to be in the Rs 107.90 to Rs 108 range (equivalent to an yield of 7.18 per cent to 7.20 per cent). The closing price for the paper in the secondary market today was at Rs 107.85.

Said a primary dealer: "As the liquidity condition favours prices to move up further due to the liquidity comfort in the market, we expect the market participants to bid higher and the cut-off to be set at a higher level, compared with today's closing levels."

Dealers said the auction cut-off will give a signal as to which direction the yields will move.

The treasury head of a private sector bank said: "The auction cut-off will tell us whether the Reserve Bank of India is comfortable with the relentless dip of government paper yields. If the cut-off is in line with market expectations or more than that, there can be a further rally after the result is announced."