Twin Auction Likely To Be Oversubscribed

Tomorrow's twin auction of government security of Rs 7,000 crore is likely to be oversubscribed, given the liquidity overhang in the system.

Money market dealers said even 200 per cent oversubscription is possible for the 12-year paper (9.81 per cent 2013 for an amount of Rs 4,000 crore), while there will be good response to the 20-year security (10.25 per cent 2021 for an amount of Rs 3,000 crore) as well.

The cut-off price for the 12-year paper is expected to be in the range of Rs 103.20 to Rs 103.30 (equivalent to an estimated yield of 9.35 per cent to 9.40 per cent), while the expected cut-off price for the 20-year paper should be in the Rs 101.65-101.70 range (equivalent to an estimated yield between 10.23 per cent and 10.27 per cent).

With tomorrow's auction, the Reserve Bank of India (RBI) will complete more than 54 per cent of the gross government borrowing programme of Rs 1,19,770 crore.

A dealer with a private sector bank said: "There is ample liquidity in the system and it is likely to remain so throughout July because of inflows on account of the redemption of government security. An amount of Rs 7,000 crore is too little to have an impact on the market liquidity."

There have been redemptions of Rs 7,400 crore earlier this month and another Rs 12,400 crore of similar inflows will enter the system during the rest of the month. Dealers feel that, though this redemption pressure might have forced the government to take the auction route, it has provided enough liquidity for the auctions to go through comfortably.

The comfortable liquidity in the market was reflected in today's three-day repo auction as the RBI accepted bids of Rs 11,800 crore at a cut-off rate of 6.50 per cent.