Cut-off yield to set the tone for the week
Price movement in government securities this week will be determined by the cut-off being set at the auction of two dated securities on Tuesday.
The restrictions on call money lending and borrowing, which have come into force with effect from October 5, are not expected to affect trading volumes in gilts as most of the banks are holding excess statutory liquidity ratio (SLR) securities, which some of the cash-crimped banks can use in repo transactions for meeting their funding requirements.
The central government has announced the sale (re-issue) of the 7.27 per cent government stock 2013 for a notified amount of Rs.4,000 crore through the multiple price auction method.
The government has also announced the sale (re-issue) of 7.95 per cent 2032 security for a notified amount of Rs 3,000 crore through a price based auction using uniform price auction method.
The auctions will be conducted by the Reserve Bank of India on Tuesday. Market players expects both the papers to sail through as there will be enough appetite for the 11 year paper from banks and primary dealers and for the 30-year paper from the insurance companies.
The 7.27 per cent 2013 year paper is expected to be bid at an yield of around 7.16 per cent (around Rs 100.75) at the auction.
In the secondary market the yield on the corresponding maturity paper was last quoted at 7.20 per cent.
In the case of the 7.95 per cent 2032 paper the market expects a lower cut-off of around Rs 100.40 (yield:7.91 per cent).
In the secondary market the 30-year paper was last quoted at Rs 100.50 (yield:7.90 per cent).
