11-year gilt auction oversubscribed

The 7.38 per cent 2015 government stock was oversubscribed by almost Rs 9,000 crore at the auction held here today.

The Reserve Bank of India received 288 bids for Rs 14,009 crore against the notified amount of Rs 5,000 crore.

The cut-off yield of 5.17 per cent was in line with market expectation, said dealers. They also added that the weighted average price of Rs 119.19 reflected bullish sentiment as the yield works out less.

The central bank received 77 bids for Rs 4,931 crore. However, the market towards the later part of the day came down in response to statements made by RBI top officials.

The official stated that inflation index has not fallen as was expected some time back and bonds to be issued out of the yet to be created market stabilisation fund will debut the market before the financial year end. This subdued market sentiment.

Prices fell by almost 20-30 paise in the long end and the market expects cautious bidding for open market operations to be conducted tomorrow with 5.27 per cent 2022 expected to mop up Rs 6,000 crore.

However, given the abundant liquidity in the market the OMO is expected to sail through smoothly, said dealers.

The repo subscription today also figured at Rs 47,000 crore.

Meanwhile, gilts ended weaker on Tuesday after results of the 11-year gilt auction turned out in line with expectations as investors fretted fresh impending supply could crimp the availability of money.

Sentiment was also spooked by media reports that central bank deputy governor Rakesh Mohan had said food prices had not declined in line with his expectations, traders said. Mohan could not be immediately reached for comment.

The 10-year benchmark 7.37 percent 2014 bond was quoted around 5.1192 percent, up from the previous close of 5.1140 percent.

The 7.38 percent 2015 bond, which was reissued for Rs 50 billion through an auction earlier on Tuesday at a yield of 5.1708 percent, was dealt at 5.1863 percent.

It had closed at 5.1763 percent on Monday. "After seeing the repo auction bids, there is increasing uneasiness the central bank might make sales from its own portfolio to absorb the excess funds," said a dealer at a private bank.

On Wednesday, the central bank will make an open market sale of 18-year bonds for another 50 billion rupees and dealers fear there are more issues in the pipeline which could mop up the surplus cash in the system.

Excess money, as reflected by the bids at the central bank's daily repo auctions, have averaged over 400 billion rupees in the past three days, compared with the past month's daily average of less than 300 billion.