Rangebound run ahead

OUTLOOK: G-Secs

The market will move in a rangebound manner apprehending the announcement of the new borrowing programme for the fourth quarter and the calendar for MSS.

The benchmark 7.38 per cent 2015 is likely to rule between 7.20-30 per cent. While the tightness in liquidity will continue till advance tax flows come back into the system, buying demand from major public sector banks is not expected.

This is because the sentiment in the bonds market has turned circumspect on hints of interest rate hike. Further, treasury bill auctions will mop up another Rs 4,000 crore, sucking up some liquidity. On the brighter side, the government is maintaining a credit of Rs 5,004 crore with the RBI and if this money flows into the system, liquidity will not be an issue at all.

Bankers said even though liquidity is not a major issue now, banks are wary of investing as credit demand is on the rise. Moreover, lending in credit does not require "mark to market" adherence.

Recap: The gilts market remained cautious last week due to buying activity except in short-term dated papers. Yield on the benchmark 10-year paper hovered around 6.70-75 during the week.

The corporate bond market was illiquid as banks in excess holding of the government papers are not finding any buyers for the paper.