Gilts Shimmer As War Fears Fade, Call Grooved

Gilt prices increased by 80 paise to Re 1 today at the medium and long end as tension between India and Pakistan eased. Call rates stayed high in the 7.75-8.10 per cent range as lenders stayed away from the market on the last day of the quarter.

Gilt prices opened higher today and soar during the day. A primary dealer said: "Prices fell sharply because of the border tension and the consequent fall in the rupee. It now seems that the problem will be solved without a war. This improved the sentiment."

Dealers said that the improvement in the liquidity situation due to the Rs 2,000 crore worth inflows owing to the second round of cash reserve ratio cut effective on Saturday also contributed to the rally.

In contradiction to the movement in gilt prices, call rates opened higher in the 7.75-8.10 per cent band and stayed at that level throughout the day.

A dealer with a private sector bank said: "Generally, on the last day of the quarter large-scale lenders decline to be active in a big way. Today, the same phenomenon was repeated. But there was no panic in the market and we feel that it is a temporary phenomenon."

At today's one-day repo and reverse repo auctions there were no bids.

Government security prices are likely to jump by 25-30 paise tomorrow. The treasury head at a private sector bank said: "There is liquidity in the market and the sentiment has also improved. In a situation like this, prices are expected to rally."

The 10-year paper yield, which closed at 7.95 per cent, is expected to slip to 7.92 per cent. According to dealers, falling yields will get resistance only when they reach the 7.75-per cent mark. Call rates are likely to remain in the 6.75-7.25 per cent band tomorrow.