Government securities across maturities are expected to witness a price rally of around 30-50 paise owing to ample liquidity and favourable interest rate expectations.
Trading volumes may hover above Rs 6,000- Rs 7,000 crore on the back of good liquidity. Activity is likely to be seen in medium and long-tenor securities, which will be traded to arbitrage the yield differential.
Illiquid securities are going to attract trading interest this week as too much money is chasing too few securities. This has resulted in supply constraints in highly traded securities.
Illiquid papers such as the 9.40 per cent 2012, the 10.71 per cent 2016 and the 10.95 per cent may clock good trading interest.
In fact, these securities have already seen a 10-15 paise movement last week. Prices of medium papers are likely to go up by 20-25 paise this week, while the longer tenor papers might see a rally of around 40-50 paise.
Dealers say even though prices will rise, it will be interspersed with bouts of profit booking.
A combination of factors such as the recommendation of an interest rate cut on employees provident fund (EPF), a gradual softening of inflation rate, and rupee inflows of banks making their way through intervention in the foreign exchange have perked up sentiment.
As a result, trading volume last week touched all-time high of Rs 9,700-odd crore. Another factor that has contributed to the rally was heavy buying by insurance companies who could manage to get high yielding securities at competitive prices, and brisk trading by public sector banks.
Dealers said any stock that has good availability and pays a satisfying yield differential will be of interest in the present scenario.
Reuters adds: According to players, the yield curve could flatten this week as lower inflation and high market liquidity spur hopes of a cut in the central bank
