Dealers said expectations of the cut-off yield had risen over the past few days to 11.30-11.35 per cent from 11.25 per cent mirroring a rise in secondary market yields.

The 11.64 per cent 2000 bond -- a similar maturity two-year bond -- was last dealt at 11.315 per cent on Friday. The two-year bonds on auction were basically attractive from a trading point of view, particularly since most market-activity was concentrated in short-tenure bonds, they said.

Dealers said the auction would sail through comfortably at 11.30-11.35 per cent, but could develop some problems at lower yields. "It will be fully subscribed. The market knows that there will not be another opportunity as it is unlikely there will be another issue of short-term bonds now," Securities Trading Corporation of India chief dealer Chandan Sinha said.

The governmenthas completed over 80 per cent of its gross borrowings. Dealers said they expected some aggressive bidding by primary dealers at the auction.

"This auction will see some aggressive bidding by primary dealers," HDFC Bank assistant manager, money markets, Ashish Vaidya said. "Even if they put in their underwriting bids at 11.25 per cent and hope for a commission, of say 20 paise, they should be very happy. If the market does revive at any point, these bonds should be the first to look up."

A state-run bank dealer said the central bank was unlikely to offer a yield of 11.35 per cent as it would then tug down prices of other securities.

"If 11.35 per cent is offered, the 11.55 per cent 2001 bond will depreciate further," he said.

This bond was dealt at Rs 99.90 on Friday.

Dealers said funds supply with banks was also good with over Rs 10,000 crore locked up in central bank repos.