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Wednesday, Jul 27, 2005

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Bond prices surge; rupee buoyant

Our Bureau

MUMBAI: In the bond market, prices of short-term papers rallied by about Re 1 and long-term papers by as much as Rs 3on Tuesday after the Reserve Bank of India left the reverse repo rates unchanged.

Mr R.V.S. Sridhar, Vice-President (Treasury), UTI Bank, said a fall of almost 22 basis points in the yields of some papers was the market's unanimous response to the rate remaining untouched. Dealers said there was heavy buying by all banks and a few corporates as well.

Mr Jayesh Mehta, Executive Vice-President, DSP Merrill Lynch Ltd, said the announcements triggered a rush to reinstate or cover positions and the yield on the 10-year benchmark gilt eased 20 bps. He said, "It is clear that the RBI is willing to stay on hold as inflationary pressures are slow to surface. We think that the bearish case for gilts has moderated and credit demand will influence demand for gilts."

Mr Mehta also said that if the central bank ensured appropriate liquidity, gilt yields might trade in a range and not weaken as many market participants had been expecting.

The 10.25- 16 year-2021 paper opened at Rs 122.90 (7.72 per cent YTM) and closed the day at Rs 126.10 (7.42 per cent YTM). The 7.27-8year-2013 paper ended the day at Rs 102.20 (7.90 per cent YTM), higher than Monday's Rs 101.18 (7.08 per cent YTM). The 7.38-10 year-2015 benchmark paper ended the day at Rs 102.50 (7.02 per cent YTM), up from Monday's Rs 101.65 (7.14 per cent YTM).

The call rate was at 5.05 per cent (5.05). The CBLO market saw 232 trades being put through in the 4.51-5.15 per cent range, amounting to Rs 10,022.95 crore.

In the one-day reverse repo auction, under the Liquidity Adjustment Facility, the RBI received and accepted 24 bids amounting to Rs 12,745 crore.

The rupee was buoyed by foreign institutional inflows and there was not much buying by state-run banks, as was seen in the past few days. The rupee opened at 43.56/57 and reached an intra-day low of 43.5850. The Credit Policy brought some cheer as the rupee gained to end at 43.4650, up from Monday's close at 43.5450/55.

Dealers said the RBI would have decided not to intervene by buying dollars through state-run banks because of a cash dollar shortage. Mr L.V. Prasad, Head, Sales - Treasury, IndusInd Bank, said: "There is a cash dollar shortage and State-run banks were not seen buying the greenback today. The foreign institutional inflows were as much as $130 million which caused the rupee to appreciate."

Dealers said the quarterly review of the Credit Policy was viewed as generally positive with the central bank maintaining a stance of wait-and-watch with respect to the yuan revaluation and oil prices. In the forward premia market, the 12-month closed at 1.02 per cent (1.01) and the 6-month at 1.03 per cent (0.93).

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