The government has announced it will borrow Rs 1.10 lakh crore by September end. “Consequent upon the revision in the market borrowing requirement of the Government announced in the regular Budget for the fiscal 2009-10, it has become necessary for the Government of India to raise additional resources,” the government said in a release. “The Government of India, in consultation with the Reserve Bank of India (RBI), has decided to issue a new issuance calendar for marketable dated securities.”

As per the new calendar, the RBI would conduct 10 auctions between July 18 and September 25. The government will borrow Rs 36,000 crore in July via three auctions, another Rs 36,000 crore till August 28 via three auctions again, and Rs 38,000 crore in September via four auctions.

Here's CNBC-TV18’s Latha Venkatesh on how the development would impact bonds markets.

Since that is not the case, the market is at the moment in a sense of relief but one should not expect that this bond rally can continue for too long. For one thing, in the month of June, private credit, that is loans by private sector companies from banks has shot up considerably. In the first two months of the current year––April and May––the total credit taken by the private sector contracted compared to the month ago terms and compared to year ago terms. However, there was recovery in June and if this continues then there is genuine competition for cash. Therefore, it looks like bond prices will peak out at current levels and interest rates may rise.