Market participants already expecting good buying demand from the PSBs on the back of low inflation and greater liquidity.
But dealers preferred to peg a range of 5.07-5.12 per cent for the movement of the benchmark 10-year yield owing to the ever-present possibility of liquidity management measures by the Reserve Bank of India. Some even go as far as to quote a wide range of 5.05-5.15 percent for the benchmark yield.
Although fundamentally all factors look favourable, banks are wary of investments in gilts and building up large positions as they are not sure if the interest rates could fall further owing to profit selling.
Moreover the gilts market is seeing lows as mutual funds are offloading gilts to meet redemption pressure.
This week is expected to augur well for the investors as the heavy buying is expected from the PSBs, who were fence-sitters till now.
With the interim dividend to be paid and credit demand yet to translate to better bottomline, trading profit remains the only avenue for now.
Therefore, heavy buying is expected so as to bring a rally in the market. Last week, the gilts market was quiet except towards the end of the week when the yields came off following buying demand.
The benchmark 10-year issue saw highs of 5.18 per cent but settled around 5.11-12 towards the weekend.
The yields rose as the market was trading thin amid bearish sentiment. Expectations of credit growth, tightening of the external commercial borrowings guidelines and rising interest rates globally have marred sentiment.
