(Reuters) - Indian government bond yields jumped on Friday after the Reserve Bank of India (RBI) devolved a bulk of the 10-year bond on primary dealers at an auction, while a relentless spike in U.S. yields further weighed.
The 10-year benchmark 7.26% 2032 bond yield ended at 7.3889%, after closing at 7.3426% on Thursday. The yield rose for the second consecutive week.
"Devolvement, which is unlikely to be followed by any action, will hurt the market, especially at the fag end of the auction cycle," said Naveen Singh, head of trading at ICICI Securities Primary Dealership.
The RBI devolved 82.54 billion Indian rupees (nearly $1 billion) of the 7.26% 2033 bond on primary dealers of the total 120-billion-rupee auction size. This was the first devolvement from the central bank in five months.
New Delhi raised 280 billion rupees via debt sale on Friday, its penultimate sale for the current financial year.
The auction cycle comes to an end at a time when the government bond yield curve has flattened after an unexpected hawkish turn to monetary policy on tight domestic liquidity, analysts said.
This has dampened appetite for short-term securities, and the trend is likely to continue in the near term, they added.
Meanwhile, the 10-year U.S. yield inched above 3.90% earlier in the day for the first time in 2023 after the latest U.S. data raised bets of the Federal Reserve hiking rates for a longer period and by at least 50 basis points (bps) to combat inflation.
The yield was at 3.40% on Feb. 2.
Higher January inflation reading in India has also raised bets that the RBI will hike rates one more time in April. The RBI raised the repo rate by 250 bps this financial year.