Gilts end high on ample funds

Government bonds ended higher today on the back of a fall in overnight call and CBLO rates, which dropped due to the robust liquidity.

Liquidity was in surplus with banks having covered product needs for the reporting fortnight.

Government spend seemed to be the reason for the rise in rupee supply, dealers said. The central government's cash balance with Reserve Bank of India as on April 27 was Rs 100 crore, down from Rs 600 crore a week ago.

Banks were flush with funds as the central bank continued to accept only Rs 3,000 crore at reverse repo tenders, rejecting Rs 25,600 crore of additional subscriptions.

The call rate ended today at 4.50-5.00 per cent, sharply below the borrowing or repo tender rate of 7.75 per cent.

CBLOs also settled at 4.14 per cent from 5.21 per cent Monday and 5.72 per cent on Saturday indicating that demand was weak, while supply plenty.

Gilt prices opened 10-12 paise higher and rose another 10 paise as call rate eased from opening levels. Gilt yields, which have an inverse relation to prices, fell 4-5 basis points.

"Till Friday, call rate should sustain at these levels," said a primary dealer, adding that cut-off yields at the treasury bill auctions on Wednesday could also fall by 5-6 basis points as liquidity was good.

The 8.07 per cent, 2017 gilt ended at Rs 99.77 (8.1012 per cent yield-to-maturity) compared with Rs 99.48 (8.1458 per cent YTM) on previous day.

Trade turned quiet after the 10-year benchmark 2017 bond touched 8.10 per cent. Dealers either booked profits or moved to the sidelines because auctions are due this week.

Prices again moved up towards close on ample liquidity.

On Wednesday, RBI will sell the 7.55 per cent, 2010 gilt for Rs 2,000 crore under market stabilisation scheme.

It will also auction Rs 10,000 crore of bonds on Friday as part of the scheduled government borrowing for 2007-08 (Apr-Mar).