Dealers said profit-booking on Friday could cap further gains. The newly auctioned 12.25 per cent 2010 bond, re-issued on Wednesday, was traded at Rs 110.75, up 15 paise over the morning's levels. The RBI on Wednesday set a cut-off price of Rs 110.60 at the auction.

The 11.99 per cent 2009 bond was traded at Rs 109.30 in evening trade compared to early morning levels of Rs 108.90. On Wednesday evening, this bond was dealt at Rs 108.80.

"Traders bought the new 10-year bond in a big way in the evening. Prices moved up and I guess they will stabilise around these levels," a primary dealer said.

The RBI set a cut-off of 10.52 per cent for the 10-year bond, much higher than expectations of 10.48 per cent. "The buying in the evening was more to align the new bond to the yield curve. The curve has become steep as short term yields have fallen while long term rates have risen in the past three weeks," a dealer in a private sector bank said.

Yields on ten-year bonds rose from 10.26 per cent on April 10 to 10.52 per cent on May 3.

The yield on the 364-day treasury bill fell from 9.31 per cent on April 4 to 9.13 per cent on May 3. The buying in the long-term bonds spilled over to the medium and short term securities, although prices did not rise as much as in the longer end. The 9.90 per cent 2005 bond was traded at Rs 100.30 compared to Rs 100.15 in morning deals. The bond was traded at Rs 100.15 on Wednesday. Dealers said they did not expect long-term bond prices to move up further as rising inflation and heavy supply of long-end bonds in the primary government bonds market had forced traders to take a view that interest rates in the long end had bottomed out.

The year-on-year inflation rate measured by the wholesale price index rose to 5.55 per cent in the week ended April 15 from 4.64 per cent in the previous week.