Bonds continue to trade strong

MUMBAI: Bonds continue to trade strong ahead of the RBI annual policy statement scheduled on Tuesday with the benchmark yields falling to 1 and 1/2 month lows on Monday. Surplus cash in the banking system is also adding to the good mood in the market.

However there was confusion among some traders realted to the fortnightly buy back of bonds, with some suggesting that RBI may cancel the operations for this week.

"There are expectations that the central bank may cut key policy rates on Tuesday," says Anoop Verma, associate vice president at DCB. "There will be lots of volatilty in the next day or two, thats for sure" he added.

At 3pm, the yield on the 10 year benchmark bond was at 6.38%, off an early low of 6.34% that was last tested on March 5. It had ended at 6.41% on Friday. Initially yields has risen to 6.47%, with no announcement being made on the sceduled buy back which is to happen later this week.

The central bank is also due to sell Rs 9,000 crores treasury bills on Wednesday and Rs 12,000 crorse of bonds on Friday.
The rupee weakened marginally on Monday in line with losses in other Asian currencies with delaers suggesting that the local stock market would continue to provide direction to the market. At 3pm, the rupee was at 50.18 against the dollar,weaker than its previous close of 49.87. Stock market's key index BSE sensex was down 82 points to trade lower at 10942 at 3pm.

The euro hit a one-month low against the dollar and a three-week trough versus the yen on Monday due to uncertainty over policy steps the European Central Bank may take.