Rangebound trend on the anvil
The government securities market will see rangebound trading this week.
The enchancement of the size of the weekly 91-day treasury bill auction from Rs 250 crore to Rs 1,000 crore could weigh on sentiment.
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The peak levels that the market attained a couple of weeks back is unlikely to be touched as players feel that the Reserve Bank of India has done enough - made statements about its discomfort with the steep fall in yields; and set cut-offs at the open market operation (OMO) and regular auctions that were not in line with market expectations - to dampen the sentiment.
The benchmark 7.40 per cent 2012 paper, which was last dealt at 6.374 per cent on Friday, is likely to be traded in the 6.38-6.45 per cent yield band.
The upcoming advance tax payments in the middle of this month could temporarily squeeze liquidity and will keep traders from buying aggressively.
The central bank, in view of the prevailing liquidity conditions, has enhanced the notified amount in the auctions of 91-day treasury bills from the present Rs 250 crore to Rs 1,000 crore for four auctions starting from December 11, 2002 to January 1, 2003.
The position will be reviewed thereafter. It has also been decided to change the format of the auction of 91-day treasury bills from the present uniform price format to multiple price format for the four auctions from December 11, 2002 to January 1, 2003.
The position will be reviewed thereafter. The notified amount and the present format of auction of 364-day treasury bills will remain unchanged.
Traders are of the opinion that the hike in the notified amount is a move to absorb some surplus liquidity in the banking system, which has been driving bond yields down.