India bond yields increase as investors concentrate on the auction and the inflation report

Indian government bond yields might trade marginally higher on Friday, tracking a similar move in U.S. peers, although gains may be limited as investors await the weekly auction of bonds and local inflation data. During the session, the yield on the 10-year benchmark bond was at 7.3047% at 0445 GMT, after ending at 7.2673% on Thursday, a trader with a private bank said. It had fallen eight basis points in the last two sessions.

"With U.S. yields steady after their inflation data, we do not expect any major action today," the trader said, adding the focus would be on local inflation reading as well as debt supply ahead of the long weekend.

The 10-year yield increased by 10 basis points on Thursday as investors increased their bets that the Federal Reserve will keep raising interest rates as long as inflation stays high, despite recent relief from price pressures.

The benchmark Brent crude oil contract has increased over the last two trading sessions until Thursday as the International Energy Agency increased its prediction for this year's growth in oil demand. The price of the benchmark Brent contract was $99.15 a barrel, up more than 3% over the previous 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.
 
On Monday and Tuesday due to local holidays, the Indian stock exchanges will be closed.
In spite of this, market participants anticipate a decline in India's most recent reading on retail inflation, possibly replicating U.S. data that showed inflation that was less severe than anticipated.

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.

(with inputs from Reuters)