Rs 3000 Crore Omo Auction Today

The Reserve Bank of India (RBI) stepped in to curb the continuous fall in government security yields by announcing an open market auction for Rs 3,000 crore on Tuesday. The apex bank will offer the 11.75 per cent 2004 paper.

The treasury head of a private sector bank said: "Government security prices rallied by 40-45 paise today, bringing down sharply their yields. The 10-year benchmark yield is now around 7.17 per cent. But, from earlier experience, it seems that the apex bank does not want it to fall below 7.25 per cent and that's why it has announced the auction."

 

Dealers also said that the central bank's motive is to mop up a major chunk of inflows coming through the redemption and coupon payments.

A senior dealer said: "There will be inflow of around Rs 5,000 crore. This could drive down the 10-year paper yields by another five basis point but for tomorrow's auction."

A section of dealers, however, said the auction was unexpected. "We did expect an auction but thought it would be conducted in the second half of the week."

The 11.75 per cent 2004 paper, though illiquid at present, is likely to receive good response. Said a money market dealer: "Some public sector banks and foreign banks have an interest in short-term paper as they are expecting a repo rate cut. Most of the float will be picked up by these banks."

The expected cut-off price is in the Rs 109.50 to Rs 109.55 range, tantamount to yields in the band of 6.35 per cent to 6.40 per cent.

The RBI conducted a twin auction for Rs 7,000 crore on Friday. This was lower than the Rs 8,000 crore suggested in the indicative calendar.

This move by the apex bank had boosted sentiment in gilts. Prices, in fact, have been rallying since last Wednesday after the central bank announced the auction. But today's auction announcement is likely to stem the rally.