Call rates ended sharply lower at 15% on the overnight call money market due to fresh ample cash available in the banking system.
The cash shortage eased after the Reserve Bank of India (RBI) said banks could use funds borrowed from it for interbank lending.
The calling-off a planned strike by bank unions also helped ease the shortage.
Call rates were ruling at 50-60% on Wednesday after moving in a range of 10-40%.
Government bonds moved up further on sustained buying by corporates.
Among government securities, the 7.59% maturing in 2016 moved up to Rs97.50/54 from Rs96.90/97 while its yield fell to 7.97% from 8.08%.
The 7.37% government stock maturing in 2014 firmed up to Rs96.80/83 from Rs96.18/21 while its yield fell to 7.96% from 8.09%.
The 9.39% government stock maturing in 2011 moved up to Rs 104.95/105 from Rs 104.45/50 while its yield eased to 7.98% from 8.13%.
The 8.07 per cent government stock maturing in 2017 hardened to Rs 100.80/83 from Rs 100.11/20 while its yield edged down to 7.94 per cent from 8.05.
RBI, under the liquidity adjustment facility (LAF), accepted 34 bids of Rs29,035 crore at the one-day repo auction at 7.50% in the morning. It also cleared one bid of Rs10 crore at the one-day reverse repo auction at 6% and also accepted 24 bids of Rs10,515 crore at the one-day repo auction of 7.5% under second LAF.