Tight Liquidity Likely To Push Down Prices

Government security prices are likely to go down gradually this week because of tight liquidity after last week's open market operations auctions.

Dealers said the Reserve Bank of India (RBI) by setting a very low cut-off price has signaled that it is not comfortable with the high price level prevailing in the market.

"The situation has changed from what it was in the last week. Liquidity is tight and market participants are quite clear that the RBI is not happy with the unsustainably high price level," a dealer said.

The 10-year paper yield which is at present around 8.19 per cent is likely to hover in the 8.20-8.25 per cent range this week. Dealers, however, said most of the action would be at the longer end, while the shorter end will remain stable.

"Since the credit policy announcement on October 22, prices went up at the medium and long ends, while the short end of the market remained steady. Hence after the recent liquidity tightening, the fall will be mainly for papers with more than 10-year maturity," a senior dealer with a public sector bank said.

The market was volatile on Saturday. Though net price fall was only 10-15 paise at the long end, there was 50-60 paise volatility in the market.