Call In A Groove, Short Gilts In A Rally

Call money rates stayed rangebound yesterday while security prices continued to rally in the short and medium term maturities. There was little action in the long end.

Call rates moved in the 7-7.05 per cent groove yesterday. Liquidity continues to be ample in the banking system and dealers expect little movement in the overnight interest rates over the next few days.

The rally in short-term gilts continued yesterday with prices in the segment going up by 5 to 7 paise on an average. Trading in the longer end continues to be sporadic with little interest shown by participants. However, some dealers feel that the yields in the short end cannot continue to move down for much longer.

"We could see some profit-booking over the next few trading sessions since yields look like they have bottomed out," said a dealer with a private bank. "This could lead to some increased action in the longer end though the sentiment favouring the shorter end is still strong."

Primary dealers are still saddled with paper maturing in the longer term, say players.

"The past few auctions in the longer end have seen devolvements on primary dealers and many are still holding onto that paper. This is further lowering sentiment in the longs as they are still looking for an opportunity to unload that paper," said a participant.

For the next few days the call rate is expected to continue to be in the same range while the securities market could see some profit taking.