MUMBAI: Bonds rallied after govt and RBI announced measures to encourage foreign investment in govt securities on Friday. The yields on benchmark 10-year govt securities (G-Secs) softened to 6.94% in early trades, from 6.99% on Thursday, after the govt said foreign portfolio investors (FPIs) would be exempted from long-term capital gains and withholding taxes on interest from G-Secs. Prices of bonds and their yields move in opposite directions. According to Ramkamal Samanta, chief investment officer, Star Union Dai-ichi Life Insurance, abolition of LTCG tax and removal of withholding tax on interest income for FPI investments in G-Secs, along with the inclusion of 15-, 30- and 40-year papers through the Fully Accessible Route (FAR) securities universe with no investment limit are positive for the Indian fixed income market over medium term.Until now, FPIs were allowed to invest in 10-year G-Secs under the FAR mechanism. The govt on Friday also lifted the concentration limit and the security-wise limit for investments by FPIs in G-Secs, a release said.“The decisions are aimed at attracting more foreign flows through major index inclusion channels,” Samanta said. “However, in the near term, the market is likely to be influenced more by global yield movements and domestic inflation dynamics.”The equity market, however, was upset with the govt decision to liberalise FPI investments in the sovereign bond segment while the rules for investing in stocks remained unchanged. As a result, the sensex closed 117 points lower at 74,243 points, with net selling by foreign funds in stocks on Friday at Rs 8,776 crore, BSE data showed.