Indian government bond prices fell on Friday, giving up all of their earlier gains after a spike in inflation led investors to trim back their expectations for rate cuts next week, even after the government raised diesel prices. Yields had fallen to their lowest in nearly two months early on Friday after the government's action was greeted as the type of fiscal reform that could lead the central bank to reciprocate with an increased willingness to cut interest rates.
The benchmark 10-year bond yield rose 1 basis point to 8.18 percent, after earlier falling as low as 8.10 percent, the lowest level since July 26. Still, yields fell 2 basis points for the week to mark a second consecutive week of falls. The 1-year OIS rate, which is a close barometer of near-term rate expectations, ended flat at 7.73 percent, after falling to a near 2-month low of 7.66 percent. The 5-year OIS ended 2 basis point higher at 7.21 percent. For the week, the 1-year OIS fell 4 basis points, while the 5-year rate was unchanged.