MONEY MARKET
The Union government will hit the market with the first tranche of its new borrowing programme today. The fall in yields over the last two days of the previous week will help it to price its five-year Rs 4,000 crore auction at a lower interest rate.
Taking into account the current secondary market yields and the massive liquidity floating around in the system, the five-year paper may be floated at an yield of anywhere between 11-11.15 per cent, say market sources.
Even though the new governments borrowing starts today, sucking out Rs 4,000 crore out of the system, call rate is not likely to firm up since it will be more than balanced out by massive inflows during the week.
These are on account of reversal of repos that were conducted by the apex bank on Thursday, Friday and Saturday. The central bank has mopped up a whopping Rs 12,394 crore on these three days. The heavy subscriptions at the repos may be explained by the fact that banks are shoring up funds for the government auction.
On Saturday, Rs 250.52 crore came into the system on account of coupon payments on the 11.5 per cent paper maturing in 2007. The system will also see a major inflow of Rs 2,008 crore on Tuesday as the 364-day treasury bills maturing on April 10 is redeemed on April 7, which is also the reporting day of the fortnight, due to holidays between April 8-10. Another Rs 265.03 crore is slated to come in on April 7, on account of coupon flows on the 12 per cent security maturing in 1999. Total inflows for the week thus amounts to Rs 14,667.03 crore. The RBI has announced auctions for the 14-day, 91-day and 364-day treasury bills on April 7, for notified amounts of Rs 100 each. Though the system would see outflows on this account, sufficient liquidity in the system will ensure that call rate do not go much beyond the seven per cent level during the week.
Interest rate in the inter-bank overnight money market opened at around 7.05 per cent and ruled at the similar levels on Saturday. Call rate did not firm up in spite of the outflows at the repos, and closed at around 6.5 per cent.
There was an improvement in prices in the dated securities market, as prices went up by 35-50 paise across maturities on Saturday. The 13.05 per cent 2007 was traded at the Rs 106.40 levels in the morning but later went up to around Rs 107, as against the RBI level of Rs 107.43. The 12.59 per cent 2004, which was earlier traded at Rs 105.35-40 levels, went up to around Rs 105.90.
The action on the government securities front was contrasted by subdued activity in the treasury bills segment and yields dipped by around 50 basis points.
