Government security prices fell sharply by Rs 2-3 at the medium- and longer-end of the market, while call money rates inched up ahead of the Rs 8,000 crore open market auction (OMO).
Security prices opened lower and continued to go down as players were on selling spree. Dealers said the liquidity was under strain because of repeated auctions and participants were not comfortable with the low yields.
A primary dealer said, "Yields of government securities reached their lowest levels and this has caused a bit of uneasiness in the market. As the Reserve Bank of India (RBI) started sucking out liquidity from the market through OMOs, the signal was clear that even it was not happy with the low yields. This triggered a reverse trend in the prices since yesterday." The prices fell by Rs 3.50-4.00 in the last two days.
Call rates opened slightly higher reflecting the tightness of liquidity in the market. The overnight rates went up to 6.90 per cent but came down to close around 6.60 per cent. They were in the range of 6.50 per cent to 6.60 per cent yesterday.
A dealer with a private sector bank said, "The demand for the overnight money was not high compared with yesterday. However, there was shortage due to the OMO. This caused the rates to rule higher compared to yesterday."
Government security prices are likely to go down even more tomorrow. Dealers are expecting 15-20 paise fall at the shorter-end of the market and 35-40 paise at the medium- to longer-end of the market. A dealer said, "We expect the selloff to continue and the prices may fall in the next couple of days too."
Call money rates are expected to remain in the range of 6.60 per cent to 6.90 per cent. Dealers said most of the banks had covered their CRR requirements and so the demand for overnight money would be low.
