Shifting Focus Finds Mid-Term Gilts Favourites, Calls Slip

Call rates went down marginally to stay in the 6.85-7 per cent range compared with yesterday's range of 6.90-7.10 per cent on the back of very thin demand. Government security prices continued their upward journey, though there has been a shift in focus towards the medium term security from the long term ones.

Demand in the overnight market was very thin today as most of the banks and the primary dealers have already covered their position for the current reporting fortnight, said the dealers.

A dealer with a private sector bank said, "Liquidity has already become comfortable on the back of huge deposit mobilisation, redemption inflow and the return of advance tax outflow. As the demand also went down today, overnights slipped as low as 6.85 per cent."

The Reserve Bank of India (RBI), received single bid of Rs 3,000 crore for its one-day repo auction which the apex bank accepted at the cut-off rate of 6.50 per cent. Dealers said the bid was from a large public sector bank. The central bank, however, did not receive any bid for its one-day reverse repo auction.

Government security prices continued its rally on the back of ample liquidity, soft calls and the expectation of a Fed rate cut. However, dealers said rally was mostly at the medium term segment of the market. Prices for the papers with 7-10 years maturity went up by 25-30 basis points today, while the longer term gilts remained range-bound.

The treasury head of a private sector bank said, "Long end securities are already in an oversold position. But with ample liquidity and positive interest rate outlook, players have moved towards the medium term segment.

Call rates are likely to remain in the 6.75-7 per cent range due to a very thin demand on the eve of reporting Friday. Government security prices are likely to move up by another 25-30 paise at the medium end.