Cut-Off Yield For Five-Year Paper Set At 11.78%

In line with the market expectations, the Reserve Bank of India (RBI) gave a cut-off yield of 11.78 per cent at the auction of five-year government paper yesterday. The issue sailed through without a devolvement at this yield.

The RBI accepted 73 bids against 167 bids received for Rs 5,567.16 crore. This goes to show that the security is now fairly well distributed in the market. Of the bids accepted, 23 received partial allotment, and the partial allotment percentage was 97.23 per cent.

This high percentage indicates that the major chunk of the successful bids were at the cut-off yield. The weighted average yield was 11.77 per cent, which also implies that most of the bids were put in at very close to the cut-off yield, say in the 11.76-78 range, said a dealer.

There was a slight uptick in security prices after the announcement of the auction results yesterday. The 11.55 per cent 2001 was traded at Rs 100.25, after seeing a low of Rs 100.10 earlier in the day. However, the mood in the securities segment today will continue to depend on movements in the dollar-rupee front.

There could also be a slight tightening in the call rate today, in spite of it being reporting Friday. Although the call rate has been ruling above the repo rate for sometime now, some players with surplus funds had been parking their money in the RBI repos. However, this phenomenon has not been seen in the past three days. Those who have been stocking up for the auction and were not successful, may, however, put their money in repos today.

There was no devolvement on either the primary dealers or the RBI at the auction. The primary dealers (PDs) were given a maximum commission of 17 paise. At the last auction of 4-year paper _ which is of a lower tenure_ the sentiment had been rather bullish and yet the RBI had given a higher commission of 18 paise to PDs. The expectation that banks will bid heavily and hence the risk of devolvement will not be very high had made PDs bid at a lower commission, said a market player.

The government has borrowed Rs 52,929.03 crore through dated securities till date, representing about 67 per cent of its gross borrowing programme of around Rs 79,376 crore.

In the secondary market yesterday, the four-year paper, 11.68 per cent 2002 was traded at a yield of 11.60 and the six-year paper 12.5 per cent 2004 at a yield of around 11.85 per cent.