Overnights Slump On Reddy Remark

MONEY MARKET REPORT

Gilts retraced their rapid upward path in an even more rapid fashion by sliding around 300 paise yesterday on account of RBI's insistence on cooling the markets as well as statements made by the deputy governor of RBI, Y V Reddy.

Two securities were put for open market operations by the RBI during the day with the sale of a third being announced at the end of the day.

Interest rates in the overnight inter-bank call money market which had opened in the range of 9.80-10.00 per cent increased in late trade to 13 per cent levels as the Rs 2,000 crore outflow on account of the sale of 12.32 per cent 2011 gilt reduced liquidity towards the end.

 

Dealers said the biggest fear in the market was the possibility of runaway call money rates the next day. Reportedly, the SBI could have bought a large chunk of the 12.25 per cent 2008 paper which could result in the bank lending lower amounts the following day. "This could lead to tightening of overnight call rates to levels of 20 per cent or more during the day," said a market dealer.

The Reserve Bank of India (RBI) had conducted the sale of two long dated government papers for 25-30 paise below their ruling price level in the market.

The 12.32 per cent government security maturing in 2011 was put on the OMO window at a price of Rs 112.75 and was lapped up within an hour. "Approximately Rs 2,000 crore worth of the gilt was bought by the market after which the apex bank put the 12.25 per cent 2008 paper on the sale window at a price of Rs 111.20," said a dealer.

The apex bank has also announced an open market sale of the 12 per cent 2008 government security at a price of Rs 108.95 which is more than a rupee less than its current ruling price. The wholesale debt market of the National Stock Exchange (NSE) witnessed a trading volume of Rs 1,865.09 crore on account of 273 trades.

The most traded stock on the exchange was the 11.83 per cent 2014 paper which was traded for Rs 645 crore at a weighted yield of 10.67 per cent. Price of the security moved down from an intra-day high of Rs 109.58 to Rs 107 before bouncing back by 52 paise at close.

In the long dated segment the 12.32 per cent 2011 gilt was traded for Rs 385 crore at a weighted yield of 10.46 per cent.