Auction of a large number of longer-term securities (papers with maturity of more than or equal to 10-year maturity period) has shifted the attention of the players to the medium-term papers (those with maturity period between five and 10 years).
Dealers said the successive liquidity-easing measures have kept the sentiment upbeat in the gilts market, and the longer end of the market dried up because of 24,000 crore auctions of long dated papers.
The yield of government securities fell across all maturities over the past fortnight, but the dip was more at the medium end of the market.
The yield of the five-year government paper came down to 9.20 per cent from 9.45 per cent in the beginning of the month. The yield of the 10-year paper declined by only five basis points to 10.02 per cent during the period, while the yield of one-year paper remained almost unchanged around 8.90 per cent level.
Sanjit Singh, fixed income analyst, ICICI Securities and Finance said: "The long end of the market had rallied earlier on the expectations of a bank rate cut. But the impact of the bank rate cut has largely been discounted already and the yields of long dated papers reached the bottom. Moreover, as the government borrowing this year so far was mainly through long dated papers, there is an oversupply of long dated papers in the market. This has made the medium term segment more attractive."
The central bank, since the beginning of the current fiscal year, has been issuing long dated papers, to correct the maturity profile of the government security that got distorted last fiscal. The RBI had not conducted any auction of short-term securities (securities with less than five year maturity) in 1999-2000 while during the last financial year it raised 12.48 per cent of the total amount raised through short-term papers.
In the medium-term segment (papers with maturity period of six to 10 years) it raised 38 per cent of the gross amount raised. In 1999-2000, the amount raised through medium-term papers was 34.63 per cent of the total amount borrowed during the fiscal. Borrowing through the longer term segment in 2000-01 was only 49.52 per cent as compared to 65.37 per cent raised in 1999-2000.
The weighted average of the maturity of loans raised during fiscal 2000-01 declined to slightly over 10 years, as compared to 12.6 years in the year before.
The apex bank, however, during the current fiscal has so far raised Rs 24,000 crore through long dated papers out of Rs 28,000 crore raised so far. The central bank, though, has been successful in elongating the maturity profile substantially.
