Cut-off yield on 2017 paper at 7.3%

The cut-off yield on the 7.49 per cent 2017 government stock was 7.326 per cent (Rs 101.25) as per the market expectations. On the other hand bidders were not very active on the long-tenure 7.40 per cent 2035 government stock. The yield on this stock stood at 7.728 per cent (Rs 96.18).

The auctions, expected to raise Rs 8,000 crore, are part of the government's scheduled market borrowing programme for the fiscal year ending in March.

The yields on government securities continued to harden amid the fresh issuance of Rs 8,000 crore as investors coped with tight money market liquidity conditions. Traders maintain a bearish outlook on government bonds with cash surplus seen remaining low.

The yield on the actively traded 7.37 per cent 2014 government stock prose to 7.0095 per cent, one basis point up from the previous close of 6.9971 per cent.

The yield has risen more than 3 basis points so far this week.

Even as The Reserve Bank of India earlier set a higher-than-expected cut-off price of Rs 101.25 at its auction of Rs 50 billion of the 7.49 per cent 2017 bond, compared to Rs 101.20. But it set a cut-off price of Rs 96.18 at the Rs 30 billion 7.4 per cent 2035 bond auction, lower than Rs 97.05 forecast in the poll.

The fresh issue comes on the back of dwindling cash surpluses, which has tightened the liquidity further. The liquidity is expected to shrink further due to the auction outflows.