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Bond yields move higher after fuel price increase

27 Jun 2011 Evaluate
Indian bond yields have moved higher on Monday after the government raised fuel prices, which would accelerate inflation and put upward pressure on interest rates. A drop in global commodity prices and lower US yields helped limit the rise in local yields. The government raised diesel prices by about 9%, or Rs 3/litre, late on Friday after months of delay.

On the global front, US Treasury prices extended their rally on Friday as more money flowed out of European bonds and equities into safe-haven US debt, but prices could fall next week ahead of scheduled auctions.
The Reserve Bank of India has announced the auction of 364-day Government of India Treasury Bills for notified amount of Rs 3,000 crore and auction of 91-day Government of India Treasury Bills for notified amount of Rs 6,000 crore. The auction will be conducted on June 29, 2011 using "Multiple Price Auction" method.

The yields on 10-year benchmark, the 7.80% - 2021 was up 1 basis point at 8.25%, after the government raised fuel prices, which would accelerate inflation and put upward pressure on interest rates.

The benchmark five-year interest rate swaps was lower by 1 basis point at 7.62%.

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