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India bond yields rise as investors focus on auction, inflation data

·2-min read
Illustration photo of an India Rupee note

MUMBAI (Reuters) - Indian government bond yields rose in early trading on Friday, tracking a similar move in U.S. Treasuries, as investors await the weekly auction of bonds and local retail inflation data.

The 10-year benchmark bond yield was at 7.3047% at 0445 GMT, after ending at 7.2673% on Thursday. It had fallen eight basis points in the last two sessions.

"The sharp rise in U.S. yields is definitely weighing on sentiment, and crude oil is also slowly inching back towards the $100 per barrel mark," a trader with a private bank said.

U.S. Treasury yields rose, with the 10-year yield climbing 10 basis points on Thursday, as investors bet the Federal Reserve will continue hiking rates as inflation remains high, even though price pressures eased recently.

Global oil prices also gained, with the benchmark Brent crude oil contract rising for last two sessions through Thursday as the International Energy Agency raised its oil demand growth forecast for this year. The benchmark Brent contract was trading at $99.15 per barrel, after gaining over 3% in last two days.

Meanwhile, the Indian government will conduct a sale of bonds for 320 billion Indian rupees ($4.02 billion) and the auction includes liquid five- and 14-year notes among other notes.

"Auction cutoffs will provide clarity on the comfort level of investors with regards to current yield levels, but volume may remain lower ahead of the long weekend," the trader said.

Indian money markets will remain shut on Monday and Tuesday for local holidays.

Still, market participants expect India's latest retail inflation reading to have eased, potentially mirroring data that showed softer-than-expected inflation in the United States.

A Reuters poll showed India's July inflation may drop to 6.78% from 7.01% in the prior month.

Stubborn inflation continues to remain a major concern for the Reserve Bank of India, despite the central bank having lifted its key policy rate by 140 basis points since May.

($1 = 79.6625 Indian rupees)

(Reporting by Dharamraj Lalit Dhutia; Editing by Saumyadeb Chakrabarty)