As the rupee fell by 15 paise to 43.32 against the dollar, the long-term gilt prices fell by 10 to 15 paise across all maturities.

According to money market dealers, the skirmishes at Kargil looms large over both the money and forex markets. "The market on Tuesday witnessed nervous selling by bond traders and there were no buyers. Currently nobody wants to take position in the bond market as the prices of government securities are moving northwards," said money market dealers.

Sources said that most primary dealers were getting out of their existing portfolio by selling a few papers as is customary before any auction. However, there were not many buyers in the market.

The 12.40 per cent 2013 paper was traded at Rs 101.85 as against Rs 102.12 last week and the 12.32 per cent 2011 paper was quoted at Rs 102.40 asagainst the previous level of Rs 102.60. The 12.60 per cent 2018 was dealt at 101.38 as against the previous level of Rs 101.40. The 11.99 per cent 2009 quoted at Rs 101.25 (Rs 101.37). The 12.50 per cent 2004 went at Rs 104.20 levels (Rs 104.30-104.35) with the short-dated 11.40 per cent 2000 going steady at Rs 100.72.

Money market dealers are of the view that both the papers might devolve on the central bank in case the bids offered are unreasonably high.

"Yields may improve marginally at the auction but one should not expect it to go up drastically," a dealer at a state-run bank said.

"Since price levels are declining everyday and there are uncertainties in other markets the auction runs a price risk as well as a liquidity risk," a primary dealer said.

Overnight call rates ruled between 8.35-8.50 per cent during the day. "There could be some tightness in the markets on account of the outflows and we expect rates to be firm," dealers said.

Last Friday, RBI announced auction of Rs 5,000 crore tworeissued papers--12.32 per cent 2011 worth Rs 2000 crore and 12.40 per cent 2013 for Rs 3000 crore-- to be held on June 16.

In the current fiscal, the centre has raised Rs 8,000 crore through the private placement of the 12.40 per cent 2013 paper. Last year through the private placement route, the centre had raised Rs 2000 crore through the 12.32 per cent 2011 paper.

With the Rs 5000-crore twin auction, the centre will complete 46 per cent of its borrowing for the current fiscal. With the completion of the auction, the centre's borrowing for the current fiscal will go up to Rs 39,000 crore out of the gross borrowing target of Rs 83,571 crore. Of the total mop-up, Rs 3000 crore has been raised through the auction of 364-day treasury bills.