With this, the RBI has signalled a higher yield curve in the secondary gilt market. "There will be a realignment of yields in the secondary market," debt analyst at ICICI-Securities MR Madhavan said.

Dealers said that the 11.68 per cent gilt maturing in 2006 which was last traded at an yield of 11.56 per cent is set to increase as there is a 18 basis points difference between a paper maturing in 2006 and another in 2007.

The 11.99 per cent gilt maturing in 2009 which is trading at 11.86 per cent is also set to move northwards as the differnce between the eight and a ten year paper is only 12 basis points. "It will move up," a dealer in a primary dealer said.

Out of the Rs 2,500 crorenotified amount, the RBI received 119 bids for Rs 3,335 crore. The RBI accepted 38 bids for Rs 1305 crore with the rest of the Rs 1,195 crore devolving on the primary dealers.

Dealers said that PDs got underwriting commission of 41 paise (0.41 rupee) per Rs 100. The issue had been partially underwritten and a number of primary dealers who had bid for commissions higher than the cut-off level had their bids rejected, dealers said.

On Friday the RBI will hold the on-tap sale of the 12.30 per cent gilt maturing in 2016. Dealers said that the sale is expected to go through smoothly as insurance companies and a few banks are keen to buy the paper.