Bond yields rise, rupee strengthens a day after monetary policy

Bond yields have started moving up after the Reserve Bank of India (RBI) tightened its rate corridor on Thursday. Some market participants said they expect the 10-year yields to touch 7 per cent from the Friday close of 6.81 per cent. As yields rise, prices of bonds fall.  The rupee, meanwhile, continued to strengthen and rose to a 20-month high, as the dollar remained largely stable, despite geo-political tensions in Syria. Foreign investors continued to buy local equities and bonds. This is because even with ample liquidity around, short-term rates have started inching up and the RBI’s policy language indicated that chances of rate cuts in the coming months were slim. The Reserve Bank of India (RBI) kept the repo rate unchanged but hiked the reverse repo rate by 25 basis point. When liquidity is ample, the reverse repo rate (the rate the central bank pays to banks to absorb liquidity) becomes the operative one. A rise in operative rate should have the impact of a rate increase, said bond dealers. Therefore, bond yields should soon reflect that.  Commodity Trading Tips