Gilts set to dip and bounce

OUTLOOK: Government securities

The sentiment in the government securities stays bullish but prices may fall in the beginning of the week. This is because participants will be cautious as they have to set aside funds for state and central government auctions, the treasury bills auctions and also contend with advance tax outflows.

A dealer said trading will pick up and prices will recover towards the latter part of the week depending on the cut-off yield announced at the gilt's auction.

While banks are looking forward to this paper, insurance companies and mutual funds are likely to pick up the state government paper. There are no negative triggers as of now, said a dealer. Thus, the ten-year benchmark is expected to rule in the range of 6.80-93 per cent.

Dealers said if the ten-year benchmark breaches 6.93 per cent, it may touch 7 per cent given the uncertainty over crude oil prices and the chances of tightening in liquidity.

Recap: Trading in the government securities shot up with volumes topping Rs 7,000 crore last week. The yield on the ten-year benchmark 7.37 per cent 2015 came off to 6.80 per cent as against a high of 6.90/92 per cent during the early part of the week.

The trading was triggered by a fall in the US yields and statements by the RBI governor on stabilising interest rate.