Government security prices rose by 25-40 paise across maturities today amid signs of an easing in the Indo-Pakistan standoff.
Call money rates continued their soft trend on the back of easy liquidity. Gilts were very volatile at the outset today, with prices rising by 15-25 paise in the morning, but they calmed down following a spell of profit booking.
In the afternoon, a news channel reported that India will allow Pakistani aircraft to use its airspace, which boosted sentiment and gilt prices rallied.
A primary dealer said: "There was ample liquidity in the market. The sentiment improved today after the news. It seems that both the countries, at least for the time being, have agreed to solve the problem via dialogue."
Call money rates opened between 6.15 per cent and 6.20 per cent and stayed there throughout the day.
In the afternoon, it closed in the range of 6.10 per cent to 6.15 per cent. Money market dealers said along with the good liquidity condition, the demand for overnight money was low as most of the banks have already covered their cash reserve ratio requirement position.
In the one-day repo auction, there was only one bid of Rs 8,000 crore. The central bank accepted the bid at a cut-off rate of six per cent. There was no bid in the one-day reverse repo auction.
Government security prices are likely to continue its rally tomorrow. According to the dealers, across the maturity prices will go up by 35-50 paise. However, from Wednesday, there can be check on the increase in prices because of the concern over the advance tax outflow starting on June 15. As the liquidity condition will remain comfortable, overnight rates will continue to remain soft and hover in a band of 6 per cent to 6.25 per cent.
