Re ends weaker at 50.33 vs $, bonds rise ahead of RBI policy

MUMBAI: Bond prices rose ahead of RBI���s annual policy statement scheduled on Tuesday. Yields on the benchmark 10-year government bond fell to one and a half month lows on Monday. Dealers said surplus cash in the banking system is also adding to the good mood in the market. However, dealers were confused over RBI���s buyback of government bonds, with some suggesting that the central bank may cancel open market operations this week.

���There are expectations that RBI may cut rates on Tuesday,��� said Anoop Verma, associate vice-president at DCB. ���There will be lots of volatility in the next day or two, that���s for sure,��� he added. The yield on the 10-year benchmark bond ended 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 scheduled buyback, which is to happen later this week.

RBI is also due to sell Rs 9,000-crore treasury bills on Wednesday and bonds worth Rs 12,000 crore on Friday. Banks parked close to Rs 1.2-lakh crore with RBI in its daily money market operations. The rupee fell for a third straight day on Monday, hitting its lowest in more than one week on weakness in Asian units versus the dollar and losses in the stock market. The local unit closed at 50.33 against the dollar, nearly 1% weaker than Friday���s close of 49.87.

The dollar hit a one-month high against a basket of currencies on Monday as sharp falls in global equities prompted investors to seek the perceived safety of the dollar and the yen.

Action at the shorter end of the corporate bond space is expected to remain up in the coming days. Mortgage lenders HDFC and LIC Housing Finance will sell two-year bonds this week while REC on Friday sold Rs 1,000 crore of one-year commercial paper at 5.93%.