Govt cancels Rs 5000 cr auction

Gilt yields likely to decline by 3 basis points on Monday.

The government today cancelled its scheduled Rs 5,000 crore borrowing programme, providing the banking system a relief from further tightening of liquidity.

A dealer with a public sector bank said, "The cancellation would result in yields on government securities falling by about three basis points when the market opens tomorrow."

The government was scheduled to raise Rs 5,000 crore during February 14-22 through auction of a 10-14 year bond. The decision, announced after the closing of the markets, was taken after considering the government's finances.

Caution ruled the gilt market today with yields moving in a narrow range as traders shied away from taking positions. The uncertainty about the auction persisted throughout the day, said dealers.

The yield on the benchmark 8.07 per cent 2017 paper closed flat at 7.34 per cent. The yield in the morning trades stood at 7.33 per cent. The benchmark bond opened at Rs 105.42, touched a low of Rs 105.35 and closed at Rs 105.39.

The Reserve Bank of India (RBI) today injected Rs 21,540 crore into the banking system through the repo window. Last week, the bank had infused an average of Rs 16,822 crore every day. The overnight call rates opened at the 7-7.10 per cent levels and hovered in that range for most part of the day.

However, the rates closed at the 6.90-7 per cent levels. Last week, finance minister P Chidambaram had put at bay market talk that the auction may be cancelled.

"The market realises that if the auction is cancelled, prices may rise substantially and if it goes ahead prices will fall," said a debt market analyst.

Over the past week, domestic bond yields have nudged higher as traders anticipated fresh debt supply. Tight liquidity conditions had encouraged investors to sell government bonds to raise funds.