July 8 (Bloomberg) -- Mexican bond yields rose for a third day on speculation that the central bank will raise interest rates, diminishing demand for fixed-rate securities.

The central bank is expected to boost its benchmark lending cost to 8 percent from 7.75 percent on July 18, according to the median estimate of 24 analysts surveyed by Citigroup Inc.'s local unit, Banamex, in a report released late yesterday.

``The markets are expecting a rate hike'' said Siobhan Morden, fixed income analyst with ABN Amro Inc. in New York. ``I don't see any relief until markets are more confident about lower inflation expectations.''

Yields on the government's benchmark 10 percent bonds due December 2024 rose 5 basis points, or 0.05 percentage point, to 9.48 percent at 10:08 a.m. New York time. The bond's price slipped 0.45 centavo to 104.3 centavos per peso, according to Banco Santander SA.

The central bank last raised its key interest rate a quarter-percentage point on June 20, saying the country's inflation was ``worrying.''

The peso was little changed at 10.3359 per dollar, from 10.3347 yesterday.

To contact the reporter on this story: Hugh Collins in Mexico City at Hcollins8@bloomberg.net

Last Updated: July 8, 2008 10:10 EDT