According to market sources, most banks did not bid at the auction as they expected to pick up the short-term paper from the secondary market at par instead of taking a price risk at the auction.

In the kerb market, the new loan traded at Rs 100-110 immediately after the auction.

Meanwhile, the price of the zero coupon 2000 paper fell by 7-8 paise after the announcement of the yield on the 2000 paper. The security traded at Rs 81.97 in the kerb market.

The 11.64 per cent 2000 paper traded at Rs 100.46, 2 paise lower than the previous close of Rs 100.48, offering an yield of 11.33 per. The total trade done in both the 2000 papers was to the tune of Rs 40 crore. The 2001 paper offering an yield of 11.55 traded at Rs 94 in the secondarymarket.

At the auction, the central bank received 138 bids worth Rs 3,703 crore for the notified amount of Rs 3,000 crore out of which it accepted 125 bids worth Rs 2,793 crore.

With the auction of Rs 3,000 crore two-year paper, the central government has mopped up Rs 61,120.94 crore out of the total gross borrowing programme of Rs 79,000 crore.

Active trading is expected in all the three two-year papers (11.64 per cent 2000, zero coupon 2000 and 11.40 per cent 2000) on Tuesday as most banks have surplus funds to invest in government securities as the auction coincided with the disbursement of the second tranche of RIB proceeds to the tune of Rs 3,350 crore, dealers said.

"In the absence of better investment options, most banks are expected to park their funds in the two-year paper, which has a high trading value in the secondary gilts market," dealers said.

The two-year bond is attractive from the trading point of view as trading activities are confined to short-term bonds, dealers said. "Thesebonds are more liquid," dealers said.