(Reuters) - Indian government bond yields were largely unchanged in early trading on Friday, as the market awaited fresh supply via weekly auction, which includes a new 10-year bond.
The benchmark 10-year yield was at 7.2824% as of 10:00 a.m. IST, after closing higher at 7.2959% on Thursday.
Bond yields should be in a thin range with the benchmark glued to 7.30% levels till the cutoff of the new bond, a trader with a primary dealership said.
New Delhi aims to raise 280 billion rupees ($3.41 billion) through the sale of bonds later in the day and the auction includes 120 billion rupees of the new 10-year paper, which will replace the existing benchmark bond soon.
The new 10-year bond is likely to witness strong demand. The entire yield curve typically aligns with the cutoff of the new 10-year paper.
The note was bid at a yield of 7.2750% and offered at 7.24% at the when-issued segment.
Investor sentiment has improved after the government said it aimed to gross borrow 15.43 trillion rupees through the sale of bonds in 2023-24, while keeping the net borrowing at 11.81 trillion rupees.
Market participants had estimated the figure at 16 trillion rupees, with some fearing a higher number.
DBS Bank said if the demand for bonds turns out to be stronger than their expectations or if inflation decelerates faster, then bonds would have a relatively large room to rally.
Traders also awaited the Reserve Bank of India's monetary policy decision due on Wednesday, where the central bank is widely expected to hike the repo rate by 25 basis points followed by a prolonged pause.
The benchmark bond yield could break the key 7.25% handle due to the high likelihood of the central bank changing its policy stance to neutral, after hiking interest rates once for the last time next week, said Vikas Goel, chief executive officer of PNB Gilts.