Mumbai, May 16 -- India's bond market is beginning to price in possible RBI rate hikes later this year after Friday's fuel price increase renewed concerns over inflation, pushing government bond yields higher and reviving debate over whether the RBI may eventually need to raise rates.

On Friday, the benchmark 10-year government bond yield climbed 4 basis points (bps) to 7.06% after state-run oil marketing companies raised petrol and diesel prices by about Rs.3 per litre. The yield had already risen around 10 bps since last week to close at 7.02% on Thursday, according to Bloomberg data. A hundred basis points equals 1%.

Market participants and economists said the rise in yields reflects growing concerns that higher oil prices could rais...