Lower Cut-Off Yield Likely For Auctions

Cut-off yields for the twin auctions of Rs 6,000 crore to be held tomorrow are expected to be less than the secondary market yields of similar maturity papers.

Dealers expect the cut-off yield of the Rs 4,000-crore 10-year paper to be in the 9.45-9.48 per cent range as against today's secondary market yield of 9.51 per cent.

The cut-off price for the re-issue of the 10.45 per cent 2018 paper is expected to be around Rs 105.50 (equivalent to a yield of 9.77 per cent) compared with the secondary market price of Rs 105.40 (equivalent to a yield of 9.80 per cent).

Money market dealers said that as the interest rate was likely to go down further, the players would bid for lower than the current market yield.

"Yields of government security papers are expected to fall by another 5-10 basis points in the next fortnight, though they are already at their historic lows," the chief dealer of a private sector bank said.

Yields of government papers have declined in the last one month on the back of huge inflow through redemption.

The yields are likely to dip further as another redemption inflow worth Rs 20,000 crore is slated to hit the market next month.

The auction of both the papers are likely to be oversubscribed as banks are oversupplied with liquidity and handicapped with limited option for investment.

According to dealers, the 10-year paper could be oversubscribed to the extent of 200 per cent. For the 2018-paper, oversubscription would be in the 75-100 per cent band.

The government has been conducting auction of government securities aggressively since the beginning of this financial year.

Tomorrow's auction will complete more than 47 per cent of the gross government borrowing programme worth Rs 1,19,970 crore.