(Reuters) - Indian government bond yields were higher on Monday, with the benchmark yield rising to its highest level in three weeks after the central bank sold bonds for the first time in eleven weeks.
Market sentiment also remained cautious as U.S. yields rose, while traders waited for local retail inflation numbers due later in the day.
The benchmark 10-year yield was at 7.3176% as of 10 a.m. IST, after ending at 7.2982% on Friday. The yield rose to 7.3263% earlier in the day, highest since Nov. 22, after ending 8 basis points last week, its biggest such move since the week ended Sept. 23.
The Reserve Bank of India net sold bonds worth 28.90 billion Indian rupees ($349.73 million), in week ended December 2, data from the central bank showed.
This was the first weekly sale of notes by the central bank since the week ended September 16 and also the highest since week ended January 7.
"The fact that they sold such a large quantum ... is making investors more nervous in a week which is filled with crucial data points," a trader with a primary dealership said.
India's consumer price inflation likely cooled to a nine-month low of 6.40% in November, according to a Reuters poll of economists.
The reading in October stood at 6.77% and inflation in the country has stayed above the RBI's tolerance range of 2%-6% for 10 straight months, prompting the RBI to raise repo rate by 35 basis points to 6.25% last week, its fifth consecutive hike.
RBI Governor Shaktikanta Das also highlighted inflation concerns leading to market expectations of another rate hike in February.
Domestic inflation data would be followed by U.S. inflation data on Tuesday and the Federal Reserve policy decision on Wednesday.
The Fed is expected to hike its interest rate by 50 basis points, after raising the same by 375 bps since March.
The 10-year U.S yield rose on Friday and was at 3.56%, as data showed U.S. monthly producer prices came in higher than expected for November and consumer sentiment improved, suggesting interest rates may remain higher for longer.