Profit-Booking Spell Shaves Off Initial Surge In Gilts

Government security prices closed little changed as compared with Saturday's closing levels amidst volatility in the market. Call money rates continued to be in the 6.40 per cent to 6.65 per cent on the back of easy liquidity in the banking system.

Government security prices opened up 25-30 paise and rose further by 10-15 paise during the first couple of hours of trade. Dealers attributed the early surge to ample liquidity in the system.

Prices, however, came down in the afternoon as market participants resorted to profit-booking.

Said a primary dealer: "Good liquidity caused the rally in the government security market in the morning. But, as the prices rose too high, many players sold in the afternoon to book profits." Participants were expecting an auction announcement as well.

 

In the call money market, interest rates hovered around the refinance level of 6.50 per cent. Overnight rates opened in the range of 6.50 per cent to 6.65 per cent and dipped to close in the 6.40-6.55 per cent range.

Said a dealer with a private sector bank: "This is the second week of the reporting fortnight and most banks have already covered their cash reserve requirements in the first week itself. Hence, the demand for overnight fund was too low and this helped call rates to remain around the repo rate."

The excess liquidity in the market was reflected in the one-day repo auction, where the Reserve Bank of India (RBI) received eight bids of Rs 8,440 crore. All the bids were accepted at a cut-off rate of 6.50 per cent. There was no bid in the one-day reverse repo auction.

Government security prices are likely to open high tomorrow, and rally during the initial part of the day. Dealers, however, are expecting profit-booking at higher levels. In the call money market, demand is expected to remain soft and overnight rates should hover in the range of 6.40 per cent to 6.70 per cent.