Bonds rally strongly, Rupee pared gains

MUMBAI: Bonds advanced for a sixth day, a day after RBI cut both the repo and reverse-repo rates. It announced a buy back of bonds worth Rs 6,000 crores late yesterday evening after it said that it is committed to buying back existing bonds from the market.

Traders seem to have taken this very positively. The yield on the 6.05% note due 2019 dropped 10 basis points, or 0.1 percentage point, to 6.08% as of 3pm. The yield is now a seven week low for the benchmark bond. The central bank���s decision to cut interest rates yesterday may help the government reduce borrowing costs as it plans to sell record amounts of debt in the fiscal year that started April 1.

"Banks are back to buying table to increase their SLR levels, with all the deposits they have been receiving," says a dealer at Axis Bank. "There were a lot of redemptions of bonds too in the last week, this money too is coming back in the system. Mutual funds are also back in the game," he added.

The rupee pared gains in afternoon trade on Wednesday as shares came off earlier highs and fell more than 1%, but gains in other Asian units against the dollar affected sentiment. At 3pm, the rupee was at 50.37 against the dollar, off an earlier high of 50.05, but still stronger than its previous close of 50.43.