The day after blasts: Re recovers, gilts wilt

The rupee strengthened against the dollar a day after the London city blasts. Government bond prices, however, dropped on rising crude oil prices and rising inflation rate. The rupee firmed up to 43.615/62, from Thursday's close of 43.645/65.

Dealers said this was largely on the back of steadfast foreign capital inflows. Overall, the rupee still ended the week weaker by 0.3 per cent.

There was a good amount of dollar selling by custodial banks following recovery in the stock market as the Sensex bounced back by 66 points from yesterday's steep fall.

A lot of interest from foreign institutional investors (FIIs) helped the rupee regain some of the lost ground. The lack of dollar demand by oil importers despite higher crude oil prices further gave a boost to the local currency. The six-month and one-year dollar premiums closed at 1.53 per cent and 1.33 per cent, respectively.

While recovery was seen in the rupee, sentiment in the bond markets failed to improve. Higher oil prices and higher inflation numbers released saw bond prices fall. Wholesale price inflation rose 4.14 per cent in the week ended June 25, above the previous week's 4.10 figure.

Crude oil deliveries for August rose 44 cents to $ 61.17 a barrel on Friday as global financial markets recovered from the impact of Thursday's bomb attacks on London's transport system.

With India importing 70 per cent of its crude, a sustained rise could see further hikes in domestic prices, further fuelling inflation, said bond dealers.

The yield on the 7.27 per cent 2013 gilt rose to 7.10 per cent from yesterday's close of 7.07 per cent. The Reserve Bank of India had sold the bond at a cut-off yield of 7.06 per cent at the Tuesday auction.

Yield on the benchmark 10-year paper 7.38 per cent 2015 closed at 7.20 per cent against a close of 7.14 per cent. Heavy selling was recorded in government securities. Prices of long-tenure gilts fell by 15-20 paise, whereas short-tenure gilts fell by almost 10 paise.