Cash Glut Helps Omo Auction Canter Home

The Rs 6,500 crore open market auction of government paper was fully subscribed on the back of easy liquidity in the market. The central bank set the cut-off price for the 10.50 per cent paper maturing in 2011 at Rs 124.65. The cut-off for Rs 2,000 crore 11.43 per cent 2015 paper was pegged at Rs 125.25, while the cut-off for Rs 2,000 crore 10.18 per cent 25-year security was set at Rs 117.55.

Despite the auction outflow, government security prices rallied by 25-50 paise at the medium-to-long-end of the market compared to yesterday's close. Dealers said that outflow was not significant enough to cut short the six-week old rally in the gilts market.

 

A dealer with a private bank said: "Banks, primary dealers, insurance companies everybody is saddled with funds. In such a situation, the auction of Rs 6,500 crore was poised to evoke a positive response." Dealers also said that since there were papers with different maturities, participants could pick up securities of their choice.

A dealer with a foreign bank said that one of the institution-backed bank picked up substantial chunk of securities.

Dealers said that today's suction result may spur the RBI to conduct another round of open market operation next week. The treasury head of a private bank said: "We feel that one of the reason for conducting the open market auction was to stop the continuous decline in yields in the government securities market. However, as today's auction failed to do so, we expect round of auction shortly."