Pre-policy prop for longer papers foreseen
Long-dated government securities are expected to perk up in the run-up to the monetary & credit policy announcements on October 29 as players foresee a repo and/or bank rate cut. Medium-tenor papers, however, are seen ranged.
Participants could also press profit sales in the latter part of this week. Yield on the 10-year paper, which touched a new low of 7.032 per cent last week, could test the 7.01 per cent mark this week.
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There will be demand for gilts having residual maturity of 15 years and beyond. The dramatic rise in the prices of long-end government securities last week means the market has already factored in the rate cut. Due to this, prices are unlikely to dart up once the actual rate cut is announced.
Meanwhile, long-dated papers rose by almost Rs 1.50 last week. The aggressive weighted average cut-off set by the Reserve Bank of India (RBI) on Wednesday at the auction of the 15-year paper, the cash overload in the banking system and the statement by the Reserve Bank of India (RBI) governor Bimal Jalan on Thursday and Friday to the effect that the RBI was comfortable with falling yields and it was not planning intervention as of now bolstered gilts.
The longest-dated paper, the 7.95 per cent 2032, which gained 15 paise on Saturday and was last dealt at a yield of 7.78 per cent (price: Rs 101.90) as against an opening yield of 7.79 per cent (Rs 101.75), could dip to touch a yield of 7.75 per cent.
The benchmark 7.40 per cent 2012 paper, which closed at a yield of 7.03 per cent, could test a yield of 7.01 per cent. At this level, some correction by way of profit sales will come in, said a dealer.