Auction for Rs 4,000-cr 10.47% 2015 stock likely to sail through

Our Banking Bureau

Mumbai, May 16: THE auction of 10.47 per cent 2015 dated-stock on Thursday for Rs 4,000 crore is seen sailing through without any hiccups at a cut-off yield ranging around 10.25 per cent.

Market participants expect the cut-off yield for the 14-year stock to come down from the prevailing 10.28 per cent. The yield on 14-year stocks had, in fact, come down to 10.28 per cent on Wednesday from Tuesday’s level of 10.36 per cent.

“There is comfortable liquidity in the system. The sentiment prevailing in the market is also bullish with increasing expectations of a bank rate cut,” analysts said. Expectations of a bank rate cut become more prominent after the cut in the Fed-rate by the US Federal Reserve on Tuesday by 50 basis points to four per cent. This has given a a fillip to expectations of a bank rate cut and is seen triggering a rally in the government securities (G-Sec) market.

Analysts view the movements in the economy positively and expect yields on G-Secs to drift further as participants would prefer to build positions ahead of the actual liquidity release next week following the Reserve Bank of India’s (RBI) announcement on Saturday of a 50 basis points cut in the cash reserve ratio (CRR) to 7.5 per cent. The move on the CRR front will be effective from the fortnight beginning May 19, and will augment banks to the extent of Rs 4,500 crore. There is increasing buying interest for the longer-tenure dated stocks. With the RBI setting a low commission of two paise for primary dealers (PDs), the yields are likely to come down from today’s level. The low commission offered to PDs is a reflection of the RBI’s view that it sees the auction sailing through, which will also see the ways and means advance (WMA) amount (now touching the ceiling of Rs 10,000 crore) come down.

Bond-prices gained across maturities on Wednesday by around 25 paise. The 10.47 per cent 2015 paper traded at Rs 101.75, up by 40 paise above Tuesday’s level.

The RBI had on Tuesday announced price-based auction of the 10.47 per cent 2015 dated-stock for an aggregate amount of Rs 4,000 crore. This is after a relatively prolonged hiatus after the RBI completed nearly 25 per cent of the government’s borrowing programme in April alone.