A narrow run on the cards
Prices of government securities are expected to move in a narrow range between 5 and 10 paise during this week, according to government bond analysts.
Liquidity in the banking system will be comfortable as around Rs 12,000 crore will flow in on account of reversal of three-day and 14-day repos on Monday, apart from treasury bill redemptions.
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These inflows, however, will not translate into higher gilt prices, according to government security dealers.
There will be intermittent selling as listed banks will unload on upticks to book profits owing to their quarter-end performance considerations.
The flavour of the week will continue to be the longer papers with 9 to 15 year maturities.
Yield on the benchmark 7.40 per cent 2012 paper, which closed at 7.17 per cent levels last week, could test 7.12 per cent levels this week.
As the inter-bank call money rates are expected to hover at easy levels this week around the repo rate of 5.75 per cent, participants will fund their positions in the government securities market by rolling over their overnight call money positions and taking advantage of the cost of carry.
Further, participants are also expected to resort to switch deals.
Under switch deals profits are booked in one particular tenor paper to dress up the financials on the even of quarter-end and the proceeds are then re-invested in papers of comparable maturity. Such a move does not affect the overall book position of a bank.
With ways and means advances (WMA) standing at Rs 5,732 crore as on September 13 and advance tax of around Rs 6,000 crore accruing to the central government, the Centre will not require to borrow this week. This will lend comfort to the market.