Two-Year 11.75% Paper Auction Oversubscribed

The Rs 3,000 crore of open market operation (OMO) auction of 11.75 per cent 2004 conducted today was oversubscribed marginally.

The Reserve Bank of India (RBI) received 51 bids of Rs 3,640 crore out of which it accepted 24 bids. The cut-off price for the auction was set at Rs 109.47 equivalent to an estimated yield of 6.26 per cent.

Dealers said the oversubscription was due to the easy liquidity condition in the banking system. "Rs 3,000 crore is too small in the context of the current liquidity. The average repo bids are more than five times the auction amount," said a primary dealer.

 

The treasury head of a private sector bank also pointed out that there was an inflow of Rs 2,646 crore on account of the redemption of 11.68 per cent 2002 government paper. "Many banks used this amount to subscribe to today's open market auction," he said.

The government security market remained very stable today as the dealers felt that the auction was just a signal that the central bank is not happy with the continuous fall in government paper yields.

However, since the cut-off price was higher than the expected levels there was slight rally at the fag end of the trading session.

Dealers, however, said that the rally is not going to continue and prices will remain rangebound tomorrow.

A section of the dealers also feels that there will be a few more OMO auctions in the next couple of weeks as gilt yields are ruling close to their all-time lows.

A dealer with a foreign bank said: "Earlier we were expecting a bank rate cut. However, after the announcement of the auction, it seemed that it is not likely to happen shortly. We are now feel that RBI will rather tighten the liquidity a bit by conducting few more open market auctions."