(Reuters) - The benchmark Indian government bond yields ended little changed on Friday after a debt auction added to supply, but ended higher for the week on worries around elevated inflation levels.
The 10-year yield ended at 7.3179%, after closing at 7.3164% on Thursday. The yield rose four basis points this week, after easing 2 bps last week.
"There was some short covering today, but generally also we do not think there will be any large selloff from the current levels and come January, we could see some rally," said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.
The government raised 280 billion rupees ($3.38 billion) amid strong demand from traders, likely for short covering, in what was the penultimate debt sale for 2022.
Bond trading volume continued to remain tepid and this trend is expected to persist next week as well. Trades worth around 230 billion rupees took place during the session as of 0330 IST, against the daily average of 302 billion rupees in December.
Investors expect yields to trade in a thin range in the last week of 2022 due to the lack of major market-moving triggers.
Bond yields rose for the week after the Reserve Bank of India highlighted inflation concerns and said a premature pause in monetary policy action would be a costly error at this juncture.
The RBI raised its key policy rate by 35 basis points to 6.25% earlier this month, its fifth straight hike to tame soaring inflation.
Even though retail inflation eased below the central bank's upper tolerance level for the first time in 2022 in November, elevated core inflation is expected to force the central bank to deliver at least one more rate hike in February.