The bond market has witnessed a significant fall in the 11.30 per cent 2010 paper which has plummeted by 85 paise while the 11.40 per cent 2008 fell by 60 paise following the roll-back rumour. Simultaneously, bond prices with the medium-term maturities have fallen by around 30 paise. According to treasury managers, the benchmark 10-year yield curve rose by 15 basis points on Tuesday to close at 10.46 per cent from its Saturday's closing level of 10.31 per cent.

The fall in bond prices was stimulated after the market sentiment went bearish on the possible roll-back of the contractual savings rate. Going by the market buzz, it seems that Mr Yashwant Sinha will have to gave in to pressure to accept the suggestion from the Provident Fund Trustees to effect only a 75 basis points reduction in the Employees' Provident Fund (EPF) and to swallow his own prescription towards an easy interest rate regime. The pressure was immense on Mr Sinha for not effecting a whole 150 basis points cut as proposed in the Budget, after announcing the reduction in the EPF interest rate in his budget 2000-2001 speech.

In his Budget announcement, a cut in the savings rate to 9.5 per cent per annum from 11 per cent per annum was prescribed. Meanwhile, market participants were reluctant to take any fresh position ahead of the fiscal-end. There was persistent profit-booking which also helped prices to fall. "Meanwhile, the secondary market for securities remained subdued due to a lack of buying enquiries. Persistent profit-selling also pushed down the prices of governments securities by 10-15 paise across all maturities," a dealer said, adding: "The liquidity position in the system remained a bit tight because of year-end considerations."

Tight conditions also prevailed at the overnight call money market owing to a heavy demand to cover the reserve needs of banks in the early part of the reporting cycle and ahead of the huge outflows to a gilt issuance later in the week.

Call rates ended around 9.00-9.25 per cent, higher from previous closing levels of 8.00-8.50 per cent on Saturday. Call rates opened firm at around 8.25-8.75 per cent and most transactions were done in the region of 9.00-9.25 per cent.

Meanwhile, the Reserve Bank of India (RBI) accepted all the seven applications for its reverse repo auction and infused Rs 1,285 crore into the system. The RBI had also announced the re-issue of 11.43 per cent 2015 government dated-stock for a notified amount of Rs 3,000 crore.