Rupee, bonds on crash course

Rupee ends at a 1-year low of 46.24/26, Bonds decline by nearly Rs 1.50.

The rupee and government bond prices crashed yesterday with market sentiment turning distinctly bearish.

The spot rupee closed at a one-year low of 46.24/26 to the dollar against 45.93/94 yesterday. The rupee lost almost 18 paise during the day as banks were said to be steadily buying dollars on behalf of their importer customers.

Dealers said some of the demands were also for investing in the non-deliverable forward markets overseas, where the forward rupee was quoted at a substantial premium to rates in the domestic markets.

On the other hand, dollar supplies are drying up as exporters are happy watching the fall and cancelling their forward contracts. Foreign exchange inflows from institutional investors had all but dried up, dealers said.

Pressure to cover future payments has pushed up the premium on the forward dollar. The six month and one year forward premiums closed at 1.45 per cent (annualised) and 1.15 per cent against closing rates of 0.75 per cent and 0.65 per cent, respectively, yesterday.

Bond prices fell almost Rs 1.50 in the longer term of the maturity spectrum, and prices fell by Re 1 in the medium- and short-term. The yield on the 10-year benchmark paper (7.37 per cent 2014) inched up to a 15-month high of 5.74 per cent against 5.60 per cent yesterday.

"There is selling and selling as traders are hitting their stop loss targets every time the 10-year paper is reaching a new benchmark," said a dealer.

The sentiment in the bond markets was marred on Monday after the Reserve Bank of India governor explicitly mentioned the need for revisiting the policy rates in line with the global hardening of rates.