Call Rate Zooms, Gilts Stay Subdued

MONEY MARKET REPORT

Interest rates in the overnight call money market shot up to 30 per cent levels yesterday as liquidity remained tight throughout the day. Dealers said the Rs 3,500 crore outflow on account of two securities sold at the open market operations window on Tuesday had resulted in the worsening of liquidity as, prior to this, Rs 5,000 crore had gone out of the system due to the auction last Thursday.

"Until the auction money returns to the system, call money rates are expected to be extremely tight. Anyway, we do not expect overnight rates to ease out in the present month at least," said a dealer at a private sector bank.

 

The Reserve Bank of India (RBI) has given a clear indication that it did not approve of the overheated condition in the debt market, especially in the long-dated segment.

On Monday the apex bank sold off two government securities at sub-market prices and in the process drove down yields by around 15-20 basis points within a day.

However, the activity of the central bank led to depressed conditions in the market and prices slid with no buying support.

Realising the need for augmenting liquidity, the RBI started purchasing 364-day treasury bills from primary dealers with the lowest yield at 9.35 per cent.

Dealers said the Reserve Bank was probably setting a range of yields in order to obtain a better slope on the yield curve which had become unusually flat. "Trading in the medium term was activated as market players have realised the need to push down yields further," said a market dealer.

Call money rates are likely to remain tight at around 10-15 per cent today. "Once the 10 per cent barrier is breached, there is always a fear that it might result in runaway overnight rates," said a money market dealer.

The wholesale debt market segment of the National Stock Exchange witnessed a volume of Rs 1,533.95 crore yesterday on account of 244 deals.

The most traded stock was the 11.83 per cent 2014 gilt which has now seen a rise in yield from 10.5 per cent on Monday to 10.87 per cent by close yesterday.

It was traded for a volume of Rs 465 crore and its price fell to Rs 105.75 before bouncing to Rs 107.54 at close.

In the medium-term segment, the 12.5 per cent 2004 gilt was traded for Rs 125 crore at a weighted yield of 10.06 per cent.

Price of the security rose from an intra-day low of Rs 107.35 to Rs 108.15 by the end of the day.