According to market sources, the yield is about 25 basis points higher than market expectations. They feel that the entire yield curve will realign to the new cut-off yield and prices will fall by at least Rs two in the long end.
Following the announcement, the yield on ten-year paper which was ruling at 5.17 per cent throughout the day, closed higher at 5.21 per cent.
Prices of long term papers also fell by 50-60 paise whereas in the medium term, dealers reported prices falling by 20-25 paise after the auction results. The RBI today did not take any devolvement but lowered the cut-off price and the entire issue sailed through.
Dealers said the signal points towards increase in interest rates, as the RBI chose not to take a devolvement upon itself. Instead it preferred to accept the bids for the total notified amount of Rs 5,000 crore.
