10-year paper yield likely to be in 6-6.10% range

OUTLOOK/ GOVERNMENT SECURITIES

Government securities are expected to trade in a narrow range ahead of banks' half-yearly accounts closure on September 30, with most of the buying to boost balance sheet valuations having been exhausted in the previous week, dealers said.

The ten-year benchmark paper is expected to rule in the 6-6.10 per cent range in a cautious market.

With banks' buying momentum likely to be muted as the first half draws to a close, we should see a fairly quiet market, market players said. The big worry about a possible rate increase in October has been discounted, so there are no real negatives ahead, they added.

The entire attention this week is likely to be to look for an opportune time to transfer the statutory liquidity ratio securities to hold to maturity category.

There might not be any immediate change in the liquidity situation, but with credit pick-up in full swing, in the medium term, liquidity may come under pressure. However to that extent, the effect of the excess liquidity on money supply and inflation could be curtailed.

While some think, the inflation should moderate from the coming week onwards owing to base effect of last year, others feel the oil price hike will continue to remain a concern due to production bottlenecks in the west.

Data released on Friday showed inflation based on wholesale prices rose marginally to 7.87 per cent in the year to September 11 from the previous week's 7.81 per cent.

Higher food and manufactured product prices were the key drivers for inflation. Bonds perked up last week, with sentiment boosted by comments by the Prime Minister that interest rate increases were not the right way to tame supply side-fuelled inflation.

A senior government official also said that the government was committed to holding prices and will take more fiscal measures, if needed, to curb inflation.

The yield on the benchmark 10-year bond closed the week more than 6 basis points lower at 6.0592 per cent.