Gilt prices seen ranged

Outlook/ Government securities

 With no scheduled auctions or other liquidity absorbing measures around, this week will see a cautious rally in government security prices backed by surplus liquidity.

 Interest rate outlook will be one of the primary focus of the week as the market will be awaiting the new draft guidelines on liquidity adjustment facilities, rate movements abroad and foreign exchange inflows.

 The new guidelines will give an outlook on how short-term liquidity will be managed and how it will affect short-term interest rates. To that extent, short-term rates will give a clue on long-term rates through the yield curve.

 Outlook put out by the Crisil has stated a rise of 10-20 basis points in short-term rates in sync with global rates which are on an upswing.

 In the longer term, credit demand is expected to go up as economic recovery is round the corner.

 Last week, prices were choppy with global rates going up but ended the week with a bullish note as State Bank of India (SBI) cut its deposit rates.

 Public sector banks reportedly refrained from trading in government bonds and this was one of the reasons for the low volumes.

 Dealers said with most players, primary dealers and mutual funds engaged in distress selling of securities to meet their requirement following the illiquidity in corporate bonds, PSU banks turned buyers at low prices.

 The illiquidity in the bond market has emanated from the ban on brokers on the National Stock Exchange to deal in unlisted bonds.