"This is because Reserve Bank governor Bimal Jalan stated that he would keep the markets liquid. Another factor is the fact that non-food credit grew slower in first half by the current fiscal by Rs 5,841 crore (September 24, 1999) as compared to a growth of Rs 3,017 crore in the comparable period of the last fiscal. A lot of banks invested in long-term bonds. Therefore, despite a more issuances of longer-dated stock, yields at the far end have dipped to 11.58 per cent from 12.05 per cent as against rise to 10.41 per cent from the 10.07 per cent on one-year paper," a treasury head of foreign bank said.

But a correction appears to be round the corner. "If anything, the fall in yields is bottoming out... expectations of a CRR have been along present in the first six months, but I do not see this coming through. Spreads of banks are under pressure, and benefits from a deposit rate cut, if any, can only be prospective," says Credence analyst Sanjay Choudhary.

A related issue is also one of a depreciation in the rupee. The rupee ended Wednesday at 43.40/41 against the dollar, down from the 42.4325 levels at beginning of the current fiscal.

"The forex market has remained stable during the period... Kargil was the only factor that has pulled it down. The point though is that state-run banks have been buying dollars at 43.38 levels... a depreciation appears to be on the cards. The question is when. A rate cut may give a cue," says Mecklai Financial Services' Pramod Maskeri.