Third consecutive week of price rally in G-secs on cards

OUTLOOK/G-Secs

Government securities are expected to remain strong this week, the trigger being hopes of a fall in the inflation rate. Inflation rate fell to 4.91 per cent last week, lifting sentiment.

The beginning of the week might see some selling pressure from players who built up positions by buying gilts after the announcement of the lower inflation rate.

While there has been a rally in the bond market in the last two weeks as well, market sources said illiquid stock have also become active.

In fact, some illiquid stocks have been shifted to held-for-trading category to benefit from the interest rate differential. Illiquid stocks will also help in getting a better valuation while marking to market the portfolio in the financial year end.

The ten-year benchmark 7.37 per cent 2014 is expected to open in the 5.10-5.15 per cent range and continue at this level. Last week, the ten year touched 5.15 per cent.

The market also expects open market operations by the RBI as liquidity worth another Rs 12,000 crore is set to be added this week on account of the redemption of the 12.50 per cent 2004 government security.

There is relief in the market after the expenditure secretary said market stabilisation bonds will form part of the borrowing programme for the new fiscal.

The government's cash surplus with the central bank was expected to be around Rs 120,000-140,000 crore at the end of the current fiscal year, he added.

On the other hand, major buying pressure is likely to surface from public sector banks with huge held-for-trading portfolios. Market dealers said major buying demand will push down the yields.

Traders are awaiting the government's borrowing schedule for 2004/05 (April-March), which is likely to be announced on March 25.