The government securities market opened lacklustre last week. Even though there was sufficient liquidity, players refrained from triggering a sharp rally on fears of an open market operation (OMO) by the Reserve Bank of India (RBI).
The ice was broken by mutual funds who, in order to meet redemption pressure from unit holders, triggered selling pressure resulting in prices moving down by 10 paise in the long and medium tenors.
And the auction announcement for Rs 9,000 crore on July 15 became the turning point.
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It allayed fears of impending OMO during the week and there was good rally in the prices of government securities.
Besides long and medium-tenor papers, the short-term papers also joined the rally purely to milk the yield differential.
Prices also moved after the debt buyback proposal of the Centre was announced. It is expected that the maket will realign the prices across the yield curve so that the debt buyback gets a indicative bid, even though papers would be bought at a discount to the maket price.
The repo arena was very active as non-bank players lent very heavily even at 4.50-4.60 per cent rates.
The inter-bank call money rates moved below five per cent even on reporting Friday. Dollar buying exercise by the RBI was adding to the liquidity in the market. Even on the reporting Friday, repo subscriptions went up to the tune of Rs 27,000 crore.
The rupee, on the other hand, gained 23 paise in a week