Firm Call To Keep Gilts Leashed

Gilt prices across the board will be rangebound due to firming up of call rates. With the ways and means advances breaching the Rs 10,000 crore limit at Rs 10,499 crore, money markets dealers are expecting the Reserve Bank of India (RBI) to announce an auction next week.

Dealers expect increased buying interest in the medium-end papers (2008 to 2011 papers ) as yield differential between any two papers in the said maturity slab is quite steep compared to the long-end papers.

"Market players have built up a huge portfolio of long-end papers. Any announcement of an auction of a long-end paper during the course of the week will affect market sentiment and bring down prices in this segment," said a dealer with a private sector bank. She said that long-end papers are the most impacted when any market moving news comes, hence players will get into medium-term papers.

Gilts at the long and medium-ends are expected to see a 10 to 15 paise upward movement over the next week, said a dealer with another private sector bank.

During the last week, the secondary market for gilts opened on a negative note as the overnight call rate remained high and there were no interest rate movement indications, a leading primary dealing firm said. As a result of these factors gilt prices moved down by 50 to 100 paise across all maturities.

However, a statement made by the RBI governor on the apex bank continuing its bias towards soft interest rates perked up the market back by 50 to 60 paise.

The benchmark 11.50 per cent 2011 G-Sec was traded at a high of Rs 110.3500 and a low of Rs 110.3000, which also happens to be the last traded price, while the 11.40 per cent 2008 paper was traded at a high of Rs 110.4000 and a Rs 109.3500 low, with the last traded price being Rs 110.3700.

Till date the government has completed 39.13 per cent (Rs 46,500 crore) of its gross borrowing programme of Rs 1,18,852.46 crore for 2001-02.