Gilt Tags Surge On Hopes Of Lower Auction Cut-Off

Call money rates stayed in the 6.50-6.75 per cent range today on the back of ample liquidity in the banking system. Government security prices went up by 40-50 paise at the medium and long end as dealers expected a lower cut-off yield at the Rs 4,000-crore auction conducted today.

Call rates opened in the range of 6.60 per cent to 6.75 per cent and dipped marginally to close in the 6.50-6.60 per cent band.

Said a primary dealer: "Even though it was the beginning of a new reporting fortnight, demand for overnight money was not very high as all banks are flush with liquidity. This has kept call rates in the same range as it was during the most of last week."

 

Dealers said redemption and coupon payments have been keeping the government securities market afloat over the past week. Said a dealer with a private sector bank: "Many players have built up positions before the auction expecting a lower cut-off yield. The easy liquidity position helped them to do so."

The easy liquidity was reflected in the repo auction as well. The Reserve Bank of India (RBI) received four bids of Rs 6,750 crore in its one-day repo auction today. The central bank accepted all the bids at a cut-off rate of 6.50 per cent.

There were three bids of Rs 100 crore for the 14-day repo, all of which were, however, rejected. There was no bid in the one-day reverse repo auction.

Call money rates are likely to continue in the 6.50-6.75 per cent range tomorrow with liquidity remaining good. Government security prices should continue the liquidity-driven rally and rise by another 10-15 paise at the medium and long end.

A senior dealer said: "Even though there will be an outflow of Rs 4,000 crore on account of today's auction, the system has enough liquidity to keep the money market fluid. We expect overnight rates to remain easy tomorrow and security prices should move up further."