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Mumbai, July 11

Bond prices tumbled as a reaction to the higher cut-off price and lower yield for the Rs 7,000 crore government securities auction. RBI accepted bids amounting to Rs 1,700 crore and the remaining Rs 5,300 crore was devolved on primary dealers. The yield of the auctioned 7.59 per cent-10 year-2016 benchmark paper has hardened by 10 basis points to 7.37 per cent since Monday's closing. The price of the paper fell by 70 paise. Dealers expect the 10-year yield to weaken further to 8.43 per cent on Wednesday. Dealers said that the cut-off 8.29 per cent yield for the 10-year paper was lower than the expected 8.33-8.35 per cent. "RBI was not inclined to accept the market's pricing of the auctioned papers. Since, the rest of the auctioned amount of Rs 5,300 crore was devolved on primary dealers, the prices have crashed," said a senior dealer at a private bank. "At a time when volumes are low and there is no buying support in the market, devolvement on primary dealers to such an extent has caused the prices to crash," said another dealer at a private bank The 7.59 per cent - 10 year-2016 paper opened at Rs 95.30 (8.3 per cent YTM) and closed at Rs 94.79 (8.38 per cent YTM), down from Monday's close at Rs 95.4 (8.28 per cent YTM).

The 7.37 per cent-8 year-2014 paper opened at Rs 95.40 (8.18 per cent YTM) and closed at Rs 94.90 (8.27 per cent YTM).

(This article was published in the Business Line print edition dated July 12, 2006)
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