Twin Gilt Auction May Be Oversubscribed

The twin auctions of 12-year and 20-year papers worth Rs 5,000 crore to be conducted tomorrow is likely to be oversubscribed by more than 100 per cent. The notified amount of the 12-year and the 20-year papers are Rs 3,000 and Rs 2,000 crore.

Dealers in the money market said the liquidity comfort, which has been brought in by the coupon payments and redemption of government securities, will help both the papers sail through.

A chief dealer with a private sector bank said, "In addition to the coupon payments and the redemption (of government securities) which was brought in as small investors turned to bank deposits from the stock market, there is enough liquidity in the system to support the auction."

Dealers, however, said the cut-off yields will be in line with the secondary market yield. The expected yield for the 12-year paper will be around 10.05 per cent, while that of 20-year paper will be close to 10.50 per cent.

A section of the market feels that the repo rate cut will help the auction to receive large subscription. A dealer with a private sector bank said, "The central bank's decision to cut the repo rate is an indication of further easing of interest rates which will boost the sentiment and will encourage primary dealers and the bank to participate in the auction."

With tomorrow's auction, the Reserve Bank of India will complete Rs 37,500 crore or 31.31 per cent of gross government borrowing programme of Rs 1,19,770 crore within two months of the current fiscal. Dealers and analysts believe that the central bank will complete another 15-20 per cent of the borrowing programme by the end of the first quarter of the fiscal.