Gilt funds are switching again to long-term government securities as the spread between one-year treasury bill and 10-year government bonds has spread to about 130 basis points in the last couple of days, according to debt fund managers.
According to a fund manager with a leading private sector mutual fund, "The situation has changed from the recent past when almost everybody was out of longs where the yields had dropped sharply as a result of excess supply. The rally in gilt prices in the last couple of days is largely the result of greater liquidity arising from the ongoing India Millennium Deposit."
He expected yields in the shorter end of the market to go up sharply as liquidity gets partially affected by the forthcoming auction of Rs 3,000 crore 11.99 per cent government of India 2009 securities. Even call rates which have been relatively easier between 8-8.25 per cent hardened towards close today to around 8.50-8.60 per cent.
A dealer with a public-sector bank said it was profit-booking time as gilt prices rallied strongly in the last two days. Activity had also picked up with daily volumes now clocking about Rs 2,000 crore compared with around Rs 1,000 crore last month. Part of the rally was also attributed to lower than expected size of the proposed gilt auction.
"The market was expecting a bigger size auction and this induced a buying spree including large scale trading during the day," he added.
Compared to negative returns from equity and debt schemes in the last couple of months, returns from gilt funds have been very attractive in the short term. For instance, the annualised return on the growth option in the Prudential ICICI Gilt Fund improved to 11.35 per cent for one month to September 2000 against only 4.88 per cent in three months to September 30, 2000. Similarly, K Gilt has generated 90-day rolling returns of 11.26 per cent to September 30, 2000 under the investment plan.
