Gilts up on ample liquidity buzz

Gilt prices rose sharply today, recouping most of the losses suffered last week, as investors tried to build positions before Friday's auction on views that liquidity may not tighten, despite huge outflows.

"Bids at reverse repo are still very high, so outflows will be easily met," said a dealer at a state-run bank.

The central bank has already sold the 7.49 per cent, 2017 bond for Rs 5,000 crore on Tuesday in an out-of-turn auction, and a total of Rs 11,000 crore worth of t-bills on Monday and on Wednesday.

The Reserve Bank of India has been receiving over Rs 40,000 crore this week, despite auctions for Rs 22,000 crore scheduled this week.

The interbank call money rate has been consistently below RBI's repo rate of 7.75 per cent throughout this week.

"Market had gone into the negative zone after last Friday's (June 7) announcement by the RBI, but is in the process of retracing," said S Ananthanarayan, chief dealer, Kotak Mahindra Capital Co.

Bond prices had fallen by more than a rupee since the announcement of a slew of bond and t-bills auctions on June 7 by the central bank.

The last of these auctions to be held on Friday, the 7.49 per cent, 2017 bond for Rs 6,000 crore, is likely to meet an enthusiastic response because liquidity is still ample.

The RBI today set a lower-than-expected primary dealers' underwriting commission of 1.97 paise per Rs 100, against the expected 3.6 paise.