Sentiments in bond and forex markets were upbeat on Wednesday, despite a hawkish policy statement announced on Tuesday. With crude prices ebbing off, bond yields dipped eight basis points from their previous close while the rupee strengthened over 25 paise.

The 30-share benchmark BSE Sensex also ended 495 points in the green, which improved market sentiment.

Yields on the 10-year benchmark bond, the 8.24% paper which matures in 2018, ended at 9.32%, dipping from its previous close of 9.40%. Yields had risen to a high of 9.54% after the policy was announced on Tuesday. “Bond yields have dipped since market sentiment has improved after oil prices dipped and liquidity has improved considerably,” said a highly placed official with a bond house.

However, market sentiment continues to be cautious, with hardly anyone picking up long term positions. Traded volumes have also remained thin at just about Rs 2,000 crore. The central bank had hiked its repo rate — the rate at which banks borrow from it — by 50 basis points in its quarterly review of the monetary policy on Tuesday. It also raised cash reserve requirements for banks by a quarter percentage point, in an attempt to rein in inflation.

The rupee also rose on Wednesday, after sentiment for the local unit was improved by gains in the stock market and a dip in global crude prices. The rupee ended the day at 42.36/37 against the dollar, strengthening from Tuesday’s close of 42.64/65. “The market has taken positives from the rise in interest rates which could result in a renewed inflow of overseas capital,” said a trader with a private bank.