10-year yield dips to 5.18%, prices of long bonds soar

RBI ANNUAL POLICY STATEMENT, 2004-05

While the annual policy statement announcement of the Reserve Bank of India did not have much impact on the bonds and the foreign exchange markets, the recovery in the equity market perked up both the segments "" simply because apprehensions on foreign exchange inflows tapering were allayed.

Bond market players said with equities moving up, concerns about liquidity have abated, resulting in brisk trading. While prices of long-term papers went up by almost Re 1, medium-term papers witnessed a price hike by 50-60 paise.

Yield on the ten-year benchmark 7.37 per cent 2014 closed at 5.18 per cent compared with 5.25 per cent on Monday.

The market also drew comfort from the fact that the credit policy maintained a status quo on interest rates and pegged inflation at 5 per cent, notwithstanding the externalities. The foreign exchange market, on the other hand, saw dollar selling by exporters who were reacting to the rise in equities.

The rupee opened at 45. 52/55 per dollar, but closed with a gain of almost 5-6 paise at 45.47/48 after touching an intra-day high of 45.41 per dollar. Exporters, fearing an appreciation in the rupee, sold dollars to realise as much profit as possible.