Liquidity will be the main factor driving yields on government securities down this week.
Long-dated government securities will see good trading as the Reserve Bank of India (RBI) will conduct a twin auction on Tuesday.
The sentiment in gilts will be bullish on price, and post-auction there could be a rally.
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The yield on the benchmark 9.81 per cent 2013 issue (which Saturday was last dealt at a yield of 5.855 per cent), is seen easing to about 5.80 per cent.
The RBI will auction two gilts - the 6.25 per cent 2018 gilt for raising Rs 5,000 crore and the 7.95 per cent 2032 gilt for Rs 2,000 crore - on Tuesday. Both the auctions are set to be comfortably subscribed.
The cut-off on the 15 year gilt is seen between Rs 101.90 (yield : 6.05 per cent) and Rs 102 (6.04 per cent) and that on the 29 year gilt could be between Rs 121 (6.36 per cent) and Rs 121.25 (6.34 per cent).
Since last Wednesday, when the auction announcement was made, yields on 15-year and 29-year gilts have come down by about 5 and 10 basis points, respectively.
On Saturday the last dealt levels on the 2018 gilt and the 2032 gilt were 6.026 per cent and 6.335 per cent, respectively.
Illiquid gilts could also see some action. Within the same maturity segment, players may target gilts of higher coupon to take advantage of the yield differentials.
For example, there are two gilts maturing in 2011