S & P Lowering Likely To Lift Cut-Off At Today & #39;S Auction

The downgrading of India's long-term local currency sovereign credit rating by Standard & Poor's (S&P) may push up the cut-off rates of the twin auction to be conducted on Wednesday.

The Reserve Bank of India hopes to mop up Rs 2,000 crore through the 18-year paper and Rs 4,000 crore through the 13-year paper at 9.81 per cent.

Earlier in the day, market participants were expecting the cut-off yields of the 9.81 per cent 2013 and 2019 papers to be around 9.52 per cent and 9.90 per cent levels, respectively. However, as secondary market prices fell after the S&P downgrade, dealers revised their expectations up by 10-15 basis points. The secondary market yields of the 2018 and 2013 papers were at 10.05 and 9.65 today.

 

Dealers, however, are expecting a not-so-good response, in terms of subscription, to the auction. Players expect the Rs 2,000 crore 18-year paper to be oversubscribed, but foresee hiccups in the 13-year paper auction.

A dealer said, "Though there is no liquidity strain, the problem is the long tenure of the market is overstuffed. Moreover, the S&P factor will have the impact on the subscription as well."

The prices of government securities were steady today as most players played it safe on the eve of the auction. While there were some minor trading at the short-to-medium end of the market in the initial hours of the day, long-term trades were dull and fell heavily after the S&P announcement.

The Centre will complete more than 64 per cent of its gross borrowing programme of Rs 1,19,770 crore through the auction.