Gilt Yields Take A Knock, Call Grooved

Yields of government securities dipped to new lows today on the back of the Reserve Bank of India (RBI) setting a lower cut-off yield at the 364-day treasury bill auction on Wednesday.

The lower cut-off yield has raised expectations of a repo rate cut. Call money ruled in the 6.50-6.60 per cent range on the back of ample liquidity.

The benchmark 11.03 per cent 2012 (10-year) paper today opened at Rs 125.15 (translating into a yield of 7.51 per cent), gained half a rupee to close at Rs 125.65 (7.45 per cent), thereby breaching the psychological 7.50 per cent mark. The yield on this paper touched a low of 7.53 per cent on Monday.

The other popular paper, the 11.43 per cent 2015 paper netted a Re 1 gain today. It opened at Rs 128.80 (7.91 per cent) and closed the day at Rs 129.80 (7.82 per cent).

"There was all round buying in the market. Though the Reserve Bank of India set a lower cut-off yield of 6.49 per cent for the one year T-bill compared to the repo rate of 6.50 per cent there was good bidding interest. This is an indicator that a repo rate cut is in the offing," said a dealer with a public sector bank.

Call money was comfortable in the 6.50-6.60 per cent range. It opened and closed at this level, occasionally testing the 6.45 per cent levels. Ample liquidity has kept call money in a narrow and easy range in the run up to the reporting Friday tomorrow.

The Reserve Bank of India today received eight applications amounting to Rs 5,405 crore at the one-day repo auction held under the liquidity adjustment facility (LAF).

Call money is expected to rule steady in the 6.50-6.60 per cent range tomorrow. Government securities could move up by 10 to 15 paise across the board.