Long-Term Securities May Gain By 50 P

The prices of government securities, especially at the long-end, could appreciate by around 50 paise provided the war of attrition between India and Pakistan does not escalate into a full-fledged war.

The prices on Saturday recovered by around Rs 1.50 after crashing by almost Rs 3 the previous day. On Friday, there was mayhem in the securities market as India decided to recall the high commissioner to Islamabad in view of Pakistan's continued support to cross-border terrorism.

A dealer with a public sector bank said, "The market over reacted on Friday because of India's decision. However, it bottomed out and the prices appreciated by 40 to 50 paise on buying interest."

On Friday, the 11.50 per cent 2011 government paper crashed to Rs 120.75 (translating into an yield of 8.37 per cent) after opening at Rs 123 (8.01 per cent), while the 10-year paper recovered ground in late trades and closed at Rs 121 (8.30 per cent). On Saturday, the 10-year paper paper appreciated by Rs 1.30 to close at Rs 122.30 (8.17 per cent).

Dealers do not expect this benchmark paper to touch the previous highs of Rs 123.60 (8 per cent). The paper's appreciation will be capped at 50 paise and the yield on it could go down to 8.13 per cent next week, they said.

The 9.85 per cent 2015 paper appreciated by Rs 1.40 to Rs 111.40 (8.43 per cent) on Saturday from Friday's close of Rs 110 (8.59 per cent). This paper could also appreciate by around 40 paise early next week.

"There will be continued buying interest in long-term securities as they offer better price appreciation. The chain of price appreciation, selling pressure and buying interest in the market will continue," the dealer with the pubic sector bank said.