Back in the period 1999-2001 the then RBI governor, Dr. Bimal Jalan, had embarked on a massive interest rate cutting spree. Back then rates used to be exorbitantly high; in fact some of the bonds issued by IDBI and IFCI during the mid nineties carried yields of 16-18%. When the RBI started cutting rates many of these high yield bonds started seeing price increases. This is normally the way bonds behave. When interest rates fall then the prices of bonds rises to compensate for the higher yield on the bonds. On the other hand if interest rates rise, then the bonds see price depreciation.