Gilts Discount Auction Call, Ascend; Call Clammy

Government security prices shot up by 50-70 paise across maturities today despite the announcement of a Rs 5,000 crore auction tomorrow. Call rates remained stuck to the 6.50-6.70 per cent band.

Government security prices started going up since the morning and went up by Re 1 by mid-day. Prices, however, came down by 25-30 paise for different securities later due to profit-booking.

A primary dealer said, "The securities market was a bit cautious in the last couple of days as everybody was expecting an auction. However, as the auction was of smaller than expected amount, prices rallied sharply. However, as the prices are already at very high levels, some of the market participants took cautious approach and resorted to profit-booking."

In the call market, there was not much movement. Overnight rates opened around 6.50-6.70 per cent and stayed there throughout the day. Dealers said that the demand was low as most of the banks are flushed with funds.

A dealer with a public sector bank said, "In the call money market the situation remained unchanged. There is too much liquidity lying idle with banks seeking investment opportunity. Hence, there was very little demand for overnight money in the market."

There were seven bids of Rs 5,570 crore in the one-day repo auction. The Reserve Bank of India (RBI) accepted all the bids at a cut-off rate of 6.50 per cent. The central bank did not receive any bid for its one-day reverse repo auction.

Government security prices are likely to go up even tomorrow as liquidity comfort will be little affected because of the Rs 5,000 crore of auction. However, the rally will continue at the longer end of the market. In the call market, sufficient liquidity to meet banks' daily requirement will keep rates harnessed around the refinance rate of 6.50 per cent.