The new paper might see a coupon of 11-11.40 per cent at the auction, dealers said. With this, the government will mop up about Rs 60,000 crore out of a gross budgeted borrowing programme of Rs 79,000 crore. The cut-off yield is likely to be around 11.20-11.40 per cent, dealers added.

"Currently, the two-year paper is trading at 11.31 per cent yields," a dealer pointed out. According to I-Sec's review on the debt market, liquidity is expected to remain tight during the fortnight as an estimated net outflow to the tune of Rs 3,000 crore is expected. I-Sec has said call rates are expected to remain tight at 9-10 per cent as an estimated Rs 7,000 crore is expected to flow out by way of advance tax and about Rs 3,000 crore by the loan issue. This isexpected to exert an upward pressure on long-term yields. Thus, a good strategy will be to stay in the short- to medium-term securities, the report said.

Last week, in response to tightening of secondary market yields, the RBI had hiked the cut-off yield on the 91-day and 364-day treasury bills to 9.02 per cent (8.02 per cent) and 9.60 per cent (9.04 per cent) respectively. However the 14-day treasury bill yield remained unchanged at 8.1 per cent.

"Secondary market trading in treasury bills has fallen as about Rs 65 crore worth trades were done last fortnight. The trading was mainly dominated by the new six- and 10-year papers during the fortnight," it said.