Indian federal gilt yields showed mixed trend during the week ended Sep. 26, 2008.

At the beginning of the week Indian federal gilt yields climbed to their highest in two weeks on Monday, September 22 as tight liquidity conditions, a jump in oil prices above USD 107 a barrel and expectations of heavy government borrowing kept traders cautious.

Thereafter, gilt yields declined on a view that oil prices may remain steady after rising back over USD 100 and on expectations the Reserve Bank of India (RBI) would keep injecting liquidity into a cash-starved banking system.

While, in the mid-week, gilt yields rose to their highest in more than three weeks on Wednesday, September 24 after the government announced a surprise sale of gilts worth USD 2.2 billion, threatening to further tighten liquidity conditions.

However, after that gilt yields declined as lower global crude oil prices boosted expectations that monetary policy would not be tightened further, although volumes were soften ahead of weekly inflation data and new gilt supplies.

Finally, at the end of the week, gilt yields dropped to three-month lows as market talk that inflation at the end of August could have eased significantly from the previous week`s level spurred strong demand.

On the last day of the week i.e. on Friday, September 26, gilt yields climbed after market demand failed to cover a government gilt auction and primary dealers had to buy the shortfall, erasing early falls caused by lower-than-expected inflation. The benchmark 10-year gilt yield settled at 8.59%.

The wholesale price index (WPI) Inflation remained unchanged at 12.14% for the week ended Sep. 13, 2008, compared with the week before.