Flighty Trend Skins Gilts; Call Snakes Up, Recoils

Volatile trades triggered by political uncertainty following the terrorist attack on Parliament saw government security prices fall by 50 paise to a rupee at the medium and long end of the market. Call rates closed below 7 per cent as demand tapered off but not before touching a high of 7.30 per cent.

Gilts prices opened lower and crashed by Rs 1-1.50 within the first couple of hours. Dealers said there was uncertainty in the market as participants were afraid that home minister L K Advani might announce strong measures in wake of the attack.

A primary dealer, however, said, "Advance tax outflow also contributed to the dip in prices. However, the drop was not so sharp but for the political uncertainty."

Advani in his statement in Parliament reaffirmed the government's determination of erasing terrorism from the country and blamed Pakistan for state-sponsored terrorism. However, he restrained from announcing any moves to attack terrorist training camps in Pakistan. This rendered some relief to the market and the prices recovered a bit. At the end of the day prices closed at 50 paise-Re 1.00 lower than Saturday's closing level.

Call rates opened around 6.60-6.80 per cent in the morning. The prices remained there till mid-day when the prices crossed the 7 per cent market on the back of liquidity strain caused by advance tax outflow. Overnight rates, however, came down later during the day to close in the range of 6.75-7 per cent.

A treasury head of a private bank said: "The demand for overnight money was higher as today was the second day of the reporting fortnight. Moreover, there was liquidity strain in the market as advance tax outflow has already started." Dealers, however, said that there was little impact of the political uncertainty on the overnight market.

Government security prices are likely to come down further amidst cautious trading. Call rates will be in a range of 6.60 per cent to 7.25 per cent tomorrow as liquidity is expected to remain unchanged.