Fund managers point out that prices have shot up by as much as Rs 2 on the 10-year paper. ``The gains on the medium and short-term paper have been in line with the spurt in prices on the long-end of the market. After the cut in rates the yield curve, on an average, has gone down by 25 basis points,'' said Akhilesh Gupta, associate vice-president, Dundee Mutual Fund.

The gains in the last two days have been spectacular, to say the least. The top gainer is the gilt fund from Tata AMC with its NAV moving up by 1.49 per cent from Rs 10.23 to Rs 10.37. Though these returns are not sustainable, the two-day spurt in NAV translates into a staggering annualised return of 272 per cent!

Fund managers expect the rally to continue for some more time. ``This time around, the rally is not speculative in nature but in response to a cut in interest rates on PPF,'' said a fund manager.

``The prices of gilts are now moving up in expectation of a cut in bank rate. While call money rates are hovering at 8 per cent, five-year Gsec paper is trading at 10.42 per cent while the 10-year paper is going at 11.03 per cent. The RBI has to correct this anomaly,'' added Gupta at Dundee. Fund managers point out that prices of GSecs have been holding steady despite the announcement of a Rs 3,000 crore gilts auction. ``Though priced did dip initially, they ended with net gains towards the close. Normally, prices fall in anticipation of tightening of liquidity,'' said a fund manager.