The mood in the Government securities market may have been set right on the eve of auction of three government securities, going by the success of the purchase of securities by the central bank from banks.

The open market operation, whereby banks tender notified securities for purchase by the RBI so that they have the liquidity to subscribe to primary auctions, on Thursday saw the central bank buy four securities for an aggregate amount of Rs 9,435 crore, against the notified amount of Rs 10,000 crore. The market-related yields at which the Reserve Bank of India bought the four government securities — GS 2017 (maturing in 2017 and carrying a coupon rate of 7.99 per cent), 7.83 per cent GS 2018, 7.80 per cent GS 2021, and 8.13 per cent GS 2022 — suggests that it has primed the market for Friday's auction.

“The OMO purchase auction can be termed a grand success. This is a positive development for the market which is gearing up tomorrow's auction of three government securities for an aggregate amount of Rs 13,000 crore,” said Mr E. Srinivasa Reddy, Dealer, Andhra Bank.

Yield on the benchmark 10 year security (8.79 per cent GS 2021) softened by about four basis points (or price went up by 12 paise) on Thursday to close at 8.80 per cent, against the previous closing yield of 8.84 per cent. A bond's price and its yield are inversely related. One per cent change is equal to 100 basis points.

Though trading will be range-bound, with the 10-year paper trading in the 8.75-8.80 per cent band, Mr Reddy felt that Friday's auction will be fully subscribed.

kram@thehindu.co.in

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