Bonds rally, Re up at 45.09

The Reserve Bank of India's decision to leave the key policy rates unchanged in its annual credit policy has given a new lease of life to the government bond market.

The securities market today clocked a turnover of around Rs 6,000 crore after a gap of six to seven months even as the yield on 10 year paper dropped by about 5 basis points.

The government bond market volumes were in the range of Rs 1,000 crore to Rs 2,000 in the last few months.

International rating agency Standard and Poor's upgrade of outlook on India to positive from stable on improved fiscal prospects also played a role in boosting the market sentiment.

The foreign exchange market was also active today with the rupee closing at Rs 45.09-10 to a dollar against 45.15/16 yesterday. "The minutes of the open market committee of the US Federal

Reserve pointed towards a slowdown in the pace of rise in the Fed rate. This also boosted the market sentiment," said a dealer.

The bond market witnessed a spurt in trading of mainly short and medium term papers. There was brisk trading both in the wholesale debt segment of the National Stock Exchange and Negotiated Dealing System of the RBI.

The trading activity was mainly concentrated in treasury bills, 5-year and 10-year papers.

The yield on the ten year benchmark bond closed at 7.40 per cent as against 7.45 per cent after the RBI annual policy yesterday.

Meanwhile, the cut-off yield on 91-day treasury bills at today's auction was set at 5.40 per cent, almost 10 basis point lower than the reverse repo rate of 5.5 per cent, at which RBI sucks out overnight liquidity from the banking system. The cut-off yield at the auction last week was 5.49 per cent.

The foreign exchange market was active with the spot rupee opening at Rs 45.15-16 per dollar, around yesterday's closing level. Buoyed by foreign exchange inflows, it closed at Rs 45.09-10 to a dollar.

However with surplus liquidity in the system, the premium to be paid on six-month and one-year forward dollars closed at a low of 1.08 per cent each as against 1.13 per cent and 1.17 per cent respectively yesterday.

The RBI absorbed around Rs 60,000 crore under the liquidity adjustment facility today.