Govt to kickstart fiscal’s first loan

According to money market sources, the announcement of a 10 year paper is keeping in line with the Reserve Bank of India’s objective of floating longer maturity paper in order to avoid clubbing of maturity of dated papers with similar maturity in the market.

The Centre has raised its budgeted net borrowing programme by 19 per cent for the fiscal 2000 pegging the net borrowing target at Rs 57,461, up from Rs 48,326 crore last year. The gross borrowing programme is pegged at Rs 83,571 crore as against Rs 79,376 crore last year.

Last year, the Centre’s borrowing programme exceeded its target by more than Rs 13 crore to mop up Rs 93,752.82 crore. Out of this amount, Rs 30,000 was privately placed by the central bank and Rs 8204.617 crore devolved on RBI. The RBI sold securities worth more than Rs 20,000 crore through its open market operations (OMO).

"Currently long-term papers are much in demand and banks, provident funds and institutions are expected to subscribe to long-term papers," said money market dealers.

The comfortable liquidity in the system coupled with easy call rates have also improved the sentiments in the gilts market. On Monday the bond prices across all maturities moved up by 10-15 paise and trading was mainly confined to medium and long-term instruments.

At present, 12.25 per cent 9 year paper maturing in 2008 paper is quoted at Rs 101.78 offering a yield of 11.93 per cent. "Activity is mainly confined to medium to long-term papers and only marginal trading is seen in short term papers," a dealer from a private sector bank said.

Meanwhile, ICICI Securities (I-Sec) today said the short-term interest rates on government securities is likely to fall in the current fiscal due to increased demand for long-dated securities. "Increased participation in long-end sovereign paper would require a steeper yield curve, thereby necessitating a decline in short-term rates," I-Sec said in its latest money market update.

Currently, the indicative yield to maturity for March 2000 treasury bills is 10.15 per cent.

According to I-Sec, the differential between the one and ten year rate has to exceed 220 to 230 basis points (currently 190 to 195 basis points) for the market participation to increase in long-dated securities, having a tenure of over 10-15 years.

It said market demand for short and medium-end securities (three to nine years) increased as RBI removed the sale quotes of 11.15 per cent for 2002 dated securities and 11.98 per cent for 2004 securities from its open market operations.

"Buying interest at this end seems to confirm market belief that auction announcements in the beginning would be concentrated at the long-end thereby leaving room for appreciation at the medium-end," I-Sec said.

However, I-Sec said it did not expect significant appreciation unless yield curve steepens as a result of decline at the short-end.

I-Sec said government’s borrowings for the current fiscal was expected to kick-off this week with a long dated security auction coupled with a 364-day treasury bill auction.

"Given the outstanding maturity profile of existing debt, we expect a decided shift toward long-dated securities by the government," the money market report said.

Though 12 per cent interest rate securities maturing on Wednesday would result in a Rs 4,417 crore inflow, government will come out with fresh auctions this week to negate this, I-Sec said.