Long-end securities rally further

Our Banking Bureau

Mumbai, Dec 2: The government securities market witnessed another frenetic buying wave during the past week, which drove the long-end yields to new historic lows, says I-Sec. On the back of this liquidity-driven demand, the ten-year benchmark (yield on GoI 11.50% 2011) touched a low of 7.84%. Sensing the exuberance in the market, the Reserve Bank announced open market sale in three securities on Wednesday. The OMO-announcement prompted a fall of 80-100 paise in the long-end prices. However, prices recovered almost fully by the next day.

Continuance of easy liquidity, OMO notwithstanding, and absence of any negative factors supported the recovery in prices. Currently, the ten-year benchmark is around 7.87%.

The short-end of the sovereign yield curve, which had seen very restricted movements over the previous four weeks, finally posted a noticeable movement, with the one-year Treasury-bill yield dipping by 9 basis points to 6.70%. The primary cut-off for the same moved down from 6.83% to 6.70%. As the quantum of movement in the short-end was far lower than that in the long-end, the long-end spreads contracted further.

RBI conducts OMO to cool the market
In an apparent bid to cool the gilts market, the RBI conducted OMO auctions of three securities-GoI 11.50% 2011, GoI 11.43% 2015 and GoI 10.18% 2026-on Thursday. While the amount on offer of the ten-year security was Rs 2,500 crore, it was Rs 2,000 crore each for the other two securities. All the securities witnessed bidding interest far in excess of the offered amount. The ten-year paper cut-off at Rs 124.65, while the 14-year and 25-year securities cut off at Rs 125.25 and Rs 117.55 respectively.

Call money rates stay around 6.5%
Liquidity position in the money market, bolstered by large coupon and redemption flows, remained comfortable and call rates moved in a narrow range around the 6.5% mark through the course of the week. In fact, comfortable liquidity saw call money rates dipping to sub-repo rate levels on a number of occasions.