Once again, there is irrational exuberance in the air, and a discernible bubble in prices of government securities. Long dated government papers have moved up by nearly Rs 3 in the last fortnight, as dealers have aggressively bid prices up on the back of abundant liquidity. Take, for instance, the case of 11.83 per cent government loan maturing in 2014 which was auctioned on November 11, 1999 at Rs 100 in an yield-based auction. In the next three weeks, the paper appreciated by as much as Rs 3. The paper was being traded at a premium of Rs 103.35 only last Tuesday.
However, the bubble nature of the rise was much in evidence as this paper, like many others, collapsed by as much as 90 paise this Tuesday, and another 50 paise on Wednesday. Even yesterday, gilt prices declined by around 50 paise, as a Reserve Bank official's comment brought some sense back to the market.
However, this time th