Gilt prices fall, 10-year yield at 6.96%

Prices of government securities fell across maturities by 60-70 paise today, thus pushing up the yield. The yield on the 10-year benchmark 7.38 per cent paper rose to 6.96 per cent, 13 basis points higher than Wednesday's close to 6.8154 per cent.

With this, the yield on this paper rose by about 30 basis points since the beginning of the new fiscal year on April 1.

Dealers said the 10-year yield can cross 7 per cent and go up to 7.25 per cent. The bearish hangover led to dealers offloading freshly acquired 2012 paper in the April 5 auction, 60-70 paise less in the market.

A dealer said, few public banks and primary dealers, which had subscribed to the 2012 paper in the primary auction, are stuck with the entire stock of Rs 5,000 crore.

According to dealers, one of the major reason hurting the market sentiment was the huge supply of government securities under government borrowing programme in the current fiscal.

While there is huge supply, demand is dying down. This is because none of the PSU banks are willing to buy papers as there is no exit route available.

Even after shifting the trading securities to the non-trading category, the banking sector is in excess of 15 per cent in maintaining securities under statutory liquidity requirement (SLR) as it stands at 40 per cent against the mandatory 25 per cent requirement.

Moreover, what is hurting the market sentiment is the fact that the RBI allowed the auction of 2012 paper at a high cut-off yield of 6.80 per cent even when the market rate was 6.53/56 per cent, said dealers.

They added that giving a comforting signal to the market, the central bank could have rejected bids made at high interest rate.

Dealers with PSU banks said the RBI could come out with a purchase window to absorb the government securities from the market to increase the appetite of the market.