The India-Pakistan border situation and the auction of 15-year paper on Monday will influence prices of government securities during the week. If the border tension eases, it could be trigger a marginal rally at the longer end of the market.
A dealer with a private sector bank said: "There is no problem with liquidity. However, the market will remain concerned over the border situation. Moreover, the cut-off yield in Monday's auction will give an indication in which way the market should move."
Dealers, however, said the auction will not create any liquidity shortage. The treasury head of a private sector bank said: "In the absence of opportunities to deploy funds, the public banks are putting money in repo auction. In a situation like this there should not be any problem with an outflow of Rs 5,000 crore." He said the auction is likely to get more than 100 per cent oversubscription.
However, even if the Indo-Pak situation stabilises, there will not be any sharp rally in the gilt prices. Dealers said that as the prices are already at very high level, only 50 paise to Re 1 jump at the longer end of the market is expected. "Any rise more than Re 1 will attract profit-booking and the prices will come down," said a dealer with a new private bank.