Auction cut-offs to set trend

OUTLOOK: Government securities

The government announced a borrowing programme of Rs 10,000 crore through the auction of two papers "" the 7.27 per cent 2013 and the 10.25 per cent 2021.

According to dealers, while the 2013 paper will be mopped up by banks, the 2021 gilt will cater to insurance companies and trusts.

Both the auctions are likely to sail through comfortably. The market is expected to be flush with liquidity with the increase in government spending. However, the driving factor will be the cut-off yields at which these papers are auctioned.

After the auction is over, markets expect a rally in government securities. In this backdrop, the ten-year paper is expected to move in the range of 6.87-96 per cent.

Recap: Even as the inflation rate for the week ended June 18, 2005, was at 4.11 per cent as against 4.33 per cent the week before, the government securities prices fell after a short rally. The bearish sentiment was on account of the government's decision to borrow Rs 10,000 crore from the market.

Liquidity also remained a concern, which led to selling of gilts during the week.