Border Worries May Keep Gilts Rangebound

Trading is likely to remain thin in the government security market this week, while prices will remain range-bound on concerns over the India-Pakistan border situation.

Money market dealers said that liquidity will not be a problem during the week. The expected range for the 10-year paper yield is 7.65-7.75 per cent.

According to dealers, most of the banks and primary dealers are flushed with liquidity, though it will be the 'event risk' which will primarily guide the market.

The country treasurer at a foreign bank said: "It all depends on the various statements made by the minister of India and Pakistan, and the International leaders on the border situation. If it comes out that there will be no immediate war, the sentiment will improve and the liquidity will help the government security prices to rally."

However, a section of the dealers feel that a sharp rally, even if the border condition improves, is not possible. A dealer with a public sector bank said: "The Reserve Bank of India (RBI) in the recent past through the auction cut-off has given the indication that yields are already at low levels. Hence after a brief rally there is likely to be profit-booking."

Dealers are also expecting open market operation to the tune of Rs 5,000 crore to mop up the excess liquidity in the market.

On Saturday, government security prices hovered around the Friday's levels. Trading volume was thin as most of the market participants were staying sideline on the back of their concern over the border situation.