(Reuters) - Indian government bond yields were marginally lower early on Friday, tracking a downward movement in U.S. yields, ahead of the last central government debt auction for this financial year later in the day.
The 10-year benchmark 7.26% 2032 bond yield was at 7.3770% as of 10:00 a.m. IST, after closing lower at 7.3905% on Thursday.
"There is some solace as the 10-year U.S. yield is way off 4% levels which it threatened to break during the week," a trader with a state-run bank said.
"Still major focus would be the auction cutoffs, and painful memories of last week are still fresh in minds of traders," the trader added.
New Delhi will raise 260 billion rupees ($3.14 billion) through the sale of bonds, including the auction of liquid seven-year and 14-year bonds.
The Reserve Bank of India (RBI) devolved a bulk of the 10-year bond on primary dealers last week, spooking market sentiment and leading to a sharp rise in yields in the following days.
The 10-year U.S. yield eased to 3.8730% with investors already factoring in the strong economic data that supported expectations of a few more rate hikes by the Federal Reserve.
The yield had hit 3.98% on Thursday, with investors expecting a break of 4%.
Domestic sentiment was supported, as the minutes of the RBI's latest monetary policy meeting were less hawkish than feared.
The central bank hiked its key repo rate for the sixth consecutive time earlier this month, taking it to 6.50%, and left the door open to more tightening.
However, Nomura has assigned a 70% probability that the central bank may not further hike the rate, even as a majority of market participants are eying another 25 bps move in April.