New 18yr Gilt Auction, 2013 Reissue Notified

The Reserve Bank of India (RBI) will conduct a twin auction of Rs 6,000 crore. Of this, Rs 4,000 crore will be of 2013 at 9.81 per cent and Rs 2,000 crore of a 18-year paper. The government will complete more than 64 per cent of its gross borrowing programme of Rs 1,19,770 crore through the auction.

Dealers in the money market had anticipated the auction because of the huge redemption in the last week of July and the salary payments due by the central government. A dealer with a private sector bank said, "The auction has been long overdue. Trading in gilts today was lacklustre as participants played it safe on the eve of the auction."

Dealers, however, were expecting the auction at the medium to short end of the market, that is, a maturity period of five to 10 years. A dealer said, "There has been a huge oversupply at the long-end of the market as most of the securities auctioned during this fiscal thus far were at the long-term segment."

The issue of long-term paper once gain will hurt market sentiment, they said. A chief dealer with a private sector bank said, "Prices are likely to go down at the longer end following the auction as the auction implies further supply at the long term segment."

Dealers, however, expect both the auction to be fully subscribed as the market is flooded with liquidity. A dealer said, "The market, specially state-run banks are flushed with liquidity. This is evident from the recent reduction of deposit rates by the State Bank of India. In a situation like this the auction is likely to receive a good response."