Government bond prices could rise on Monday as the Reserve Bank of India Governor D Subbarao’s comments on government’s market borrowing on Friday are likely to keep sentiment upbeat.
Interbank overnight rate is seen steady near RBI’s reverse repo rate of 4 per cent because liquidity in banking system is ample for banks to meet reserve needs.
On Monday, gilts may open stronger because sentiment has turned upbeat after RBI assured it would conduct government’s extra market borrowing in the most market friendly manner.
Hence, the announcement of Rs 8,000 crore worth of gilt auctions for Friday is unlikely to hit sentiment.
Market was fearing a supply glut and a spike in yields going ahead because government is most likely to resort to further borrowing as it tries to balance spiralling expenditures and dwindling revenue.
The government has already announced it will raise Rs 70,000 crore over and above the Rs 1.45 lakh crore estimated in the Budget for 2008-09 (Apr-Mar).
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Some profit taking cannot be ruled out since price of the most-actively traded 8.24 per cent, 2018 paper has already risen over Rs 2 on Friday.
And a sharp movement in oil prices could impact sentiment in gilt market.
The most-actively traded paper is seen in 6.00-6.30 per cent band after settling at 6.19 per cent on Friday.
On Monday, call money rate is seen steady around 4.15 per cent because of ample liquidity situation in the banking system.