Gilts prices fall, rupee closes at 46.80

Mumbai, July 26 | Updated: Jul 27 2006, 05:30am hrs
Prices of government securities fell on Wednesday, as sentiment was cautious the day before the auction of a 4-year bond by the Reserve bank of India (RBI).

The government will sell the 7.55% 2010 bonds for Rs 4,000 crore on Thursday. However, the quarter point increase in key benchmark rates on Tuesday had more or less worn off, as the market participants had already discounted the rate hike.

The yield on the benchmark 10-year bond ended at 8.23%, up from the previous close of 8.22%. "Investors are curious about the cut-off yield for the 4-year bond," said a dealer with a foreign bank. "It should provide some direction about where yields would be in the coming days," he added.

Call rates in the inter-bank money market ended the day at 6-6.10%. RBI absorbed Rs 27,745 crore in its first reverse repo auction on Wednesday and another Rs 17330 crore through its second reverse repo auction. RBI fixed the cut-off price of the 91-day treasury bills at Rs 98.42, unchanged from the previous auction.

The yield at this cut-off price was pegged at 6.4391%. the cut-off price at the auction of 182-day treasury bills was Rs 96.74, compared with a cut-off price of Rs 96.75 at an auction two weeks earlier. The yield at the cut-off price was 6.7582%.

The rupee erased early losses to close marginally higher on Wednesday, helped by foreign fund inflows and dollar sales by exporters. Dealers said dollar selling by some state-run banks after the rupee hit the days low of 46.90 per dollar prompted exporters to unwind long dollar positions, outstripping dollar demand from oil companies.

The domestic currency ended at 46.79/80 compared with Tuesdays close of 46.8150/8250. "There was good all-round (dollar) selling because it was clear nationalized banks were holding on to the 46.90 level," a dealer with a foreign bank said.

However, it was not clear whether the state-run banks were selling on behalf of the central bank. Oil climbed back above $74 a barrel on fresh clashes between Israeli troops and Hizbollah guerrillas in Lebanon and an attack on a Nigerian oil plant. On the forward market front, premias rose on Wednesday, with the six month annualised premia closing at 1.04% as against its previous close at 0.97%.