Rbi Steps In To Stem Gilts Slide

The Reserve Bank of India today stepped in to stem the fall in yields on gilts after the yield on the benchmark 10-year paper, 7.40 per cent 2012, touched a lifetime low of 7.10 per cent.

The RBI halted the fall by announcing an open market operation (OMO). It is set to mop up Rs 6,000 crore through an auction tomorrow. The central bank will sell the 7.40 per cent 2012 bond, partially absorbing inflows of about Rs 11,000 crore from a bond redemption and coupon payments.

Had there been no open market operation, the huge inflows would have pushed the yields to unsustainably low levels, dealers said.

 

The 7.40 per cent 10 year-paper opened today at 7.14 per cent but dipped to 7.10 per cent as the prices rose. However, after the open market operation announcement, the yield jumped to 7.15 per cent.

The market was overheated as gilt prices in the medium tenor rose by over 50 paise over the past two days. The yields would have dropped further as the banking system is to get inflows worth Rs 11,127.50 crore tomorrow on account of redemption of the 11.15 per cent 2002 paper and coupon payment on the 11.40 per cent 2008 paper.

At this juncture, the open market operation auction would not only suck out excess liquidity but also stem the fall in yields and create a new benchmark for the 10-year paper, dealers said.

Sensex up on UTI deal hopes

The BSE sensex closed on Friday at 3,181.23, a six-week high level, notching gains of 67.07 points on hopes that a rescue package for the Unit Trust of India would end the supply overhang and pave the way for strong foreign fund inflows.

Smart gains in blue-chip and technology stocks fed the rally, which was also supported by buying from domestic and foreign institutions.

Hindustan Lever rallied 4.62 per cent to Rs 186.70 on domestic fund buying. Zee Telefilms stock settled up 6.91 per cent at Rs 110.65.

Ved Prakash Chaturvedi, COO at Tata TD Water House AMC said,