Gilts End Higher On Auction Eve, Calls Stay Low

Government security prices closed 50-70 paise higher on the eve of the Rs 6,000 crore government paper auction tomorrow. Call money rates remained low as the liquidity comfort remains little changed from tomorrow's level.

Dealers said the sentiment in the government security market was good and there was no problem with the liquidity situation as well. However, the market participants has taken a cautious approach before the auction and was making space for it. Prices opened slightly higher than yesterday's closing levels, but after a couple of hours, they started going down.

A dealer with a private sector bank said: "We are also looking at the auction cut-off to get a feel of the RBI's view on the current market yield."

The bid in the repo auction was once again high today reflecting the liquidity comfort. The Reserve Bank of India (RBI) received three bids of Rs 10,350 crore. The central bank accepted all the bids partially at a cut-off rate of six per cent and mopped up Rs 7,763 crore. There were no bids in the one-day reverse repo auction.

In the call money market, the rates opened in the range of 6.20 per cent in the morning and dipped further during the day to close in the range of 6.15 per cent to 6.20 per cent. A dealer with a foreign bank said: "As the RBI rejected a part of the repo bid, there was more liquidity available in the second half of the market and this led the marginal dip in the overnight rates in the afternoon."

Call money rates are expected to hover in a range of six per cent to 6.50 per cent tomorrow even though there will be Rs 6,000 crore of auction. Dealers said the auction amount is minuscule compared with the current market liquidity. The auction, however, will keep the trading in the government security market dull tomorrow with prices being range-bound. Dealers are expecting 5-15 paise fall across the maturity tomorrow.