Profit-Booking Kindles Volatility In Gilts, Calls Calm

The government security market turned volatile today as profit-booking followed the rally in the morning. Call money rates continued to hover in the same range of 6.50 per cent to 6.80 per cent with the system flushed with liquidity.

Government security prices opened 20-25 paise higher, continuing yesterday's rally. In the first couple of hours, prices moved up by another 20-25 paise. Prices, however, crashed after that as many of the players resorted to profit-booking.

A primary dealer said: "There was enough liquidity in the market which pushed prices up in the morning hours. However, after the initial rally, a section of the players felt the rally was unsustainable and booked profits." Prices closed 5-10 paise higher at the medium and long end of the market, compared with yesterday's closing levels.

Call money rates remained calm today on the back of lower demand for overnight money. Overnight rates opened in the range of 6.65 per cent to 6.80 per cent and dropped a bit during the day to close in the range of 6.50 per cent to 6.60 per cent.

A dealer with a private sector bank said: "It was the same scene at the overnight market. There were huge supplies from the public sector banks, but limited takers for that. Hence, the call rate continued to remain just over the repo rate."

Public sector banks continued to park their excess fund in the repo auction. The Reserve Bank of India (RBI) received four bids of Rs 9,480 crore in its one day repo auction. The apex bank accepted all the bids at a cut-off rate of 6.50 per cent. There was no bid in the one-day reverse repo auction.

While call rates will remain in the range of 6.50 per cent to 6.80 on the back of excess liquidity in the system, government security prices will remain stable with an upward bias at the longer end of the market on the back of an easy call money rate.