Auction cut-off fails to cheer mart

The Reserve Bank of India (RBI) announced cut-off rates of 5.58 per cent for the 11-year 7.38 per cent 2015 government stock and 6.29 per cent for the 24-year 6.13 per cent 2028 paper today.

Even though both the yields are in line with the market expectations, the auction result failed to cheer up market sentiment which is eagerly looking forward to the June 30 meeting of the Federal reserve.

Given the inflation and job data emerging from the US economy, bond dealers have already factored in 25 basis point ( 100 basis point equal to 1 per cent) rise in the Fed rate ( the base rate for the US economy), said a dealer.

"Gilt prices remained rangebound as results came very late, however it might have some effect tomorrow, " said the dealer.

In the 24-year paper auction, the RBI received bonds worth Rs 5,982 crore against a notified amount of Rs 3,000 crore. The subscription to the 11-year paper was Rs 10,785 crore against a notified amount of Rs 6,000 crore.

Dealers are of the view that while bid size looks quite comfortable for the 11-year paper, in case of the 24-year paper, the amount is not very encouraging given the outstanding liquidity of Rs 56,905 crore in the system.

This implies a bearish sentiment towards longer term of maturity, which dealers feel will be aggravated if Fed hikes its base rate.