Gilts Rocket As War Fears Recede, Calls Drop

Government security prices zoomed today by 50-55 paise across maturities today as the probability of an immediate war receded. Call money rates went down heavily to close in the range of six per cent to 6.25 per cent.

The sentiment in the government security market was upbeat since morning. Prices opened higher, and continued to go up during the day. Dealers said two factors were responsible for the rally.

First, the statement by Indian and Pakistani leaders gave the market the feeling that no cross-border war would happen.

Moreover, as the Rs 6,000 crore government paper was privately placed with the Reserve Bank of India, dealers feel there will be no problems with the liquidity in the near future. In addition, huge bids in the repo auction also reflected good liquidity condition in the market.

 

In the one-day repo auction, the central bank received two bids of Rs 11,700 crore. The central bank, however, accepted the bids partially to the extent of Rs 5,850 crore. Both the bids were believed to be from the large public sector banks. There was no bid in the one-day reverse repo auction.

The easy liquidity condition and the lower demand also helped the overnight rates to remain soft. The overnight rates started the day in the range of 6.50 per cent to 6.60 per cent. However, it came down very sharply during the day. Dealers said that as most of the banks have covered their cash reserve positions the demand for the call money was low in the market.

Call money rates are likely to remain in a range of 6 per cent to 6.60 per cent tomorrow in a market full of liquidity. Dealers said, as the reporting Friday is approaching the end, the demand for overnight money will further go down tomorrow. Sentiment in the government security market will continue to be good and the prices are likely to go up by another 25-30 paise. However, there can be profit-booking at higher levels.