Huge govt borrowings depress gilt prices

The yield on the six-year paper, according to the new curve, is 11.57 per cent, while the yield to maturity (YTM) of the ten-year paper has been fixed at 12.15 per cent.

"This is likely to be the new YTM for the year end," Vinod Dikshit, manager, Centurion Bank, said. The ten-year paper in the secondary market traded at 12.03 per cent on Thursday and at 12.10 per cent on Friday.

The government, on Thursday, placed Rs 6,000-crore gilts with the Reserve Bank of India. The government placed a 11.57 per cent gilt maturing in 2004 for Rs 4,000 and another Rs 2,000 crore at 12.14 per cent. The government recourse to the ways and means advances (WMA) overshot the 75 per cent limit of Rs 8,000 crore which forced it to float afresh stock of government securities.

On Thursday, the six-year paper traded at 11.57 per cent, while the ten-year paper traded at 12 basis below at 12.15 per cent. The government also redeemed Rs 1,000 crore, 13.50 per cent gilt on March 25.

Dealers also said that the bear run will continue in the securities market as the government borrowing programme has turned out to be larger than expected. "A Rs 86,000-crore budgeted borrowing programme is just too high. At this rate, the government has to come into the market every fortnight if it intends to finish the programme," a senior dealer in a foreign bank said.

"The first half will remain tight and interest rates can come under pressure," a dealer said.

The interim budget presented by finance minister Yashwant Sinha pegged the net borrowing programme at Rs 56,000 crore, but it is likely to come down to Rs 40,000 crore when the regular budget is presented. A huge repayment is slated to the tune of Rs 31,000 crore which also adds to the borrowingprogramme.

The prices of the 13.05 per cent gilt maturing in 2007, the 12.65 per cent gilt maturing in 2002 and the 11 per cent gilt maturing in 2002 rose today and is likely to go up unless the Reserve Bank of India steps in to revise the prices of its securities in the sale list upwards.