On a day when stocks and the rupee continued their southward journey, bond prices saw their biggest gains in one-and-half decades.
The benchmark 10-year bond saw yields dropping as much as 69 points to 8.21 per cent as its price rose. It was last trading at 8.28 per cent. The fall in yield comes in the wake of Tuesday’s announcement by the Reserve Bank of India to buy bonds to ease the liquidity. The RBI decision to relax bond-holding rules for lenders has also aided the drop in bond yield.
While it has gone aggressively to drain the liquidity in the system by raising short-term rates to contain rupee fall, the RBI, through its action on Tuesday, has trained its focus on bringing the long-term rates down.
The stock markets moved in step with the rupee, which tested yet another low of 64.54 against the dollar before closing with a loss of 86 paise at 64.11.
Sensex opened higher at 18545.44. However, it tanked 760 points intra-day to a low of 17807.19 before recovering at the fag-end of the session to close with a loss of 340.12 points or 1.86 per cent at 17905.91. The NSE Nifty, too, plunged. It closed with a loss of 98.90 points or 1.83 per cent at 5302.55. The Asian markets were in a state of uncertainty ahead of the release of minutes from the Federal Reserve’s latest policy meeting. Nifty plunged as blue chip stocks came under fresh selling pressure.