Government security prices are likely to dip by 35-40 paise at the long end this week due to a volatile forex market and a deterioration of the liquidity condition because of advance tax outflows.
"Liquidity is likely to be strained in the coming week because of the weakening of the rupee against the dollar and the advance tax payment. Hence we expect prices to go down as well," a dealer said.
Dealers even expect the 10-year paper yield to cross the 10 per cent mark from 9.91 per cent on Saturday. "It can go up to the 10.50 per cent mark if the condition in the forex market did not improve," said a dealer with a private sector bank.
The treasury head of a private sector bank said: "Volatility of the rupee is likely to continue at least for the first half of the week. If the Reserve Bank of India (RBI) tries to counter it with an open market sale of securities, the supply of government paper will increase resulting in a liquidity crunch, which, in turn, will push prices down."
Gilt prices fell by more than Rs 2 on Saturday because of the concern over forex market condition and advance tax outflows as well.
"There has been panic selling as nobody could form a concrete outlook on the forex market and the situation is expected to continue if the global political scene remained unchanged," a primary dealer said.
