15-Year Paper Auction May See Good Response

The auction of 15-year paper on Monday for Rs 5000 crore is likely to receive a good response from banks and primary dealers as the market is flush with liquidity. However, there may not be enough bids for the Rs 250 crore, that is, 5 per cent of the notified amount, to be allocated among non-competitive bidders. This is for the first time that non-competitive bidders will take part in the auction. The auction will complete Rs 1,21,000 crore of gross government borrowing against the budgeted target of Rs 1,18,852 crore.

The minimum amount for a single non-competitive bid is Rs 10,000 and the maximum is Rs 1 crore. Money market dealers said that interest was shown by cooperative banks, provident funds and non-banking finance companies to take part in the non-competitive bidding. "However, as Monday is a holiday in some states in the south, there could be a slight shortfall," said a dealer with a private bank. According to some treasury heads, there was not much queries from high networth individuals. In case of a shortfall, the non-competitive bidders will be allocated the whole amount they bid for, but if the bid amount is exceeded then allocation will be on a pro-rata basis.

 

Money market dealers are expecting the cut-off yield for the paper to be around 8.20-8.30 per cent. The yield of a similar maturity paper was around 8.23 per cent on Saturday. The auction is important because it will signal how the yields will move during the week.

A primary dealer said: "If the cut-off yield is as per our expectation, then government prices are expected to rally and the yields may fall."