Rally seen in gilt prices

GOVERMENT SECURITIES

Prices of government securities are expected to rally this week, albeit the upside is capped by the cut-off yield to be announced at the auction of the 2022 paper.

The market is sceptical about the outcome of this auction as it is a long-term paper. The expected cut-off yield of 7.15-7.50 per cent is quite wide, said a dealer.

If the yield is at around 7.15 per cent, the market will rally and the yield on the 10-year benchmark paper may touch 6.60 per cent, he added.

The 10-year benchmark paper is expected to rule in the 6.65-6.75 per cent band this week.

"With a decline in the inflation rate, expectation of moderate oil prices, surplus liquidity and the government borrowing plan being over, there are few negative triggers for the market," said a primary dealer in the gilts market.

Recap: The government securities market ended on a cautious note last week with the 10-year benchmark 7.38 per cent paper remaining range-bound within 6.70-6.75 per cent.