Bonds jittery on policy eve; rupee gains

On the eve of mid-term policy announcement by the Reserve Bank of India, bonds today turned nervous even as the foreign exchange market was subdued on the back of foreign exchange inflows.

According to bond dealers, uncertainty on the interest rate resulted in profit booking.

"There is a mixed feeling over the possibility of a repo rate hike. Thus the ones, which have built up positions by buying securities expecting no repo rate hike, are under pressure to sell as prices are moving lower on selling by those who believe there will be some tinkering with the repo rate," said a dealer with a public bank.

Prices in the long and medium-end papers fell by 40-50 paise, while the yield on the benchmark paper 7.38 per cent 2015 closed at 6.68 per cent after Saturday's close of 6.63 per cent.

Another concern for the market was consistently reducing liquidity, which is keeping the call rates high in the range of 4.7-4.8 per cent for few weeks now, said a dealer.

The spot rupee exchange rate, on the other hand, rallied after opening at 45.67/68 as against Thursday's close of 45.73 to a dollar. Dealers explained that while dollar has lost globally on concern over trade deficit, forex inflows were on hold owing to a long weekend.

Backed by inflows, the spot rupee touched a five-month high of 45.6050 before closing at 45.6450/65 to a dollar. The six-month and one-year forward dollars (annualised) closed at 2.58 per cent and 2.12 per cent, respectively.