Omo Absence Drives Gilts Rally, Call Soft

Government security prices continued to go up while call rates remained soft as the liquidity condition remained comfortable in the money market.

In the government security market, medium tenor gilts moved up by 25-30 paise, while at the short and long term gilts prices remained little changed. Dealers said that the market felt that there will be no open market operation (OMO) during the week and the advance tax outflow is also not too much. Both these factors contributed to the rally.

Call rates once again hovered just over the repo rate of six per cent. Overnight rates opened in the 6.10-6.20 per cent range and ended the day around 6.05-6.15 per cent.

In the daily one-day repo auction, there were two bids of Rs 10,110 crore. Both the bids were accepted at six per cent. According to the money market dealers, the bids were from two public sector banks. There was no bid in the one-day reverse repo auction.

Today there was an inflow of Rs 13.4 crore on account of the coupon payments on 6.50 per cent 2004 paper and outflow of Rs 250 crore due to the auction of 91-day treasury bill conducted on Wednesday. Tomorrow there will be an inflow of Rs 250 crore due to the maturity of 91-day treasury bill.

As no major change in the liquidity condition is expected, call rates are likely to hover in a soft and thin band of 6-6.25 per cent. Dealers are also expecting that the huge bid in the repo auction will continue. In the government security market, upward rally of prices in the 8-13 year maturity segment is likely to continue.