Government security prices are likely go up by 35-40 paise at the medium end, while prices at the long end should remain steady after the sharp rally last week.
Dealers said the liquidity condition is good and the Fed rate cut has also strengthened the possibility of a liquidity-easing measures from the Reserve Bank of India (RBI).
Government security prices went up by 15-20 paise on Saturday on the back of easy liquidity in the market. A dealer said: "Sentiment continued to remain bullish. However, the focus has shifted to the medium term segment."
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The liquidity situation in the current week will be boosted by the redemption of government security worth Rs 5,700 crore and coupon payment of Rs 1,700 crore. With huge deposit mobilisation and low credit off-take, this will help prices go up.
Dealers expect an auction of Rs 4,000 crore as the redemption of gilts will put pressure on the government to borrow more. They, however, added that the auction is unlikely to arrest the rally in government security prices, as banks have no other option to park their funds. A section of dealers feel there may be shift of attention to medium and short term securities as the long term segment is overcrowded.