MUMBAI: Indian government bond yields were up early on Friday, tracking a relentless rise in US yields this week. Sentiment also cautious ahead of a fresh supply of debt through the weekly auction later in the day.

The 10-year benchmark 7.26% 2032 bond yield was at 7.3636% as of 10:00 a.m. IST, after closing at 7.3426% on Thursday. “The 10-year US yield has jumped 50 basis points (bps) in a matter of two weeks and that is bound to have an impact on local yields.

Still, the move can be called muted,“ a trader with a primary dealership said.

The 10-year US yield inched above 3.90% earlier in the day for the first time in 2023 after the latest unemployment and producer price data raised bets of the Federal Reserve hiking rates for a longer period to combat inflation.

The yield ended at 3.40% on Feb. 2, but economic data releases since then have increased bets that the Fed will raise rates by at least 50 bps more.

That could also force the Reserve Bank of India to follow that path.

The RBI has raised the repo rate by 250 bps in this financial year and may raise it by another 25 bps in April.

New Delhi aims to raise 280 billion rupees ($3.38 billion) through the sale of bonds in its penultimate debt auction this fiscal.

Indian bond yields sustain fall on bets of potential rate hedge by HDFC

The auction will include 120 billion rupees of 7.26% 2033 bond, which will soon replace the existing benchmark.

The auction comes at a time, when the government bond yield curve flattened after an unexpected hawkish turn to monetary policy amid a tight domestic liquidity, dampening appetite for short-term securities, analysts said.

The trend is likely to continue in the near term.

“The government bond yield curve will continue to bear flatten when you see such inflation data,” said Akhil Mittal, fixed income fund manager at Tata Mutual Fund.