According to the report, market players should built up positions at the longer end with a medium term view as gilts prices at the longer end are expected to ease during the current reporting fortnight. "We recommend players to concentrate their portfolio at the shorter end in order to book profits when liquidity eases," the report said.

"At present, the short end looks attractive and could see appreciation towards the end of month as liquidity improves," it said.

According to the report, the high call rates above 10 per cent made treasury bills an unattractive proposition last fortnight. "The high call rates led to devolvement in major portions of all auctionslast fortnight. Participation in auctions is expected to continue on a subdued note during the fortnight," it said.

"With state loan issue mopping-up Rs 3,250 crore, call rates stayed close to 10 per cent. Owing to advance tax outflow to the tune of Rs 7,000 crore during the fortnight, call rates are expected to rule above 10 per cent level," the report said.

According to the report, in the next fortnight, liquidity is expected to improve due to redemption inflows and quarterly interest payment on CRR. "Call rates are expected to ease towards 8 per cent during this period but a temporary tightness may be expected if a government security auction in held," it said.

Accoding to the report, due to tight call rates in the past fortnight, short term corporate papers have become illiquid. "Due to tightness at the shorter end, financial institution yields in the one year segment have reacted upward by 20-30 basis points, largely in line with sovereign yields," it said.

"Beyond the short-end, liquidity hasbeen low leaving yields largely unchanged from previous levels. We do not expect any significant upside in FI paper till such time as sovereign yields decline by 15-20 basis points from current levels," it said.