Probable Auction May Check Gilts

Government security prices are likely to remain rangebound on the back of a possible auction this week.

Dealers feel prices should go up by 15-20 paise at the short and the medium end.

A dealer said: "There is no liquidity problem in the market, but, as there is a possibility of auction, the sentiment will remain subdued."

Trading in gilts was dull on Saturday. A dealer with a private sector bank said trading volumes are traditionally low on Saturdays.

"Moreover, as the market is expecting an auction in the coming week, banks and primary dealers stayed on the sidelines."

Though there will be an inflow of around Rs 6,000 crore in the next week on the back of redemption and coupon payments of government securities, most of that will be absorbed by a fresh auction.

The treasury head of a private sector bank said: "We expect an auction of at least Rs 5,000 crore in the five- to 10-year maturity segment."

"The auction cut-off will be a signal to the market and buying interest may pick up," he added.

Dealers, however, are expecting the auction to be oversubscribed as the banks are flooded with liquidity because of a huge deposit mobilisation.