PSBs to bid in today's auction

After staying away from last two government borrowing programme since the beginning of fiscal 2005-06, public sector banks (PSBs) at large have decided to participate in a big way in the auction of the five-year benchmark paper on May 3.

According to a dealer with a PSB, there has been an unanimous decision to bid actively in the forthcoming auction for two reasons.

The five-year paper - a reissue of 7.55 per cent 2010 "" is a benchmark paper.

The market is expecting a cut-off yield of around 7.05/10 per cent for the paper, which is a very good yield for a five-year if the paper is held till maturity.

The yield on the five-year paper for the last six months had remained around 6.5 per cent. Last week, the traders had set a cut-off yield of 7.15-20 for the five-year paper apprehending a lack of participation from banks.

In the last two auctions, primary dealers (PDs) and a few select public sector banks bid actively.

PDs after the auction had to offload the papers primarily - 6.85 per cent 2012 and 8.07 per cent 2017 at a discount of 15-20 paise in the secondary market, said a dealer. Following these discussions among market players, there was brisk trading in the market

Prices in long and medium term papers moved up in the range of 10-30 paise.

The benchmark paper 8.07 per cent 2017, which had closed last weekend at 7.60 per cent, came off to 7.55 per cent today.

Public sector banks have not been participating in the primary auctions as they are already holding government securities in excess of 25 per cent under the statutory liquidity requirement.

Moreover, after shifting securities from the SLR - trading category to non trading Held to maturity category banks have been refraining from fresh buys to avoid depreciation losses.