(Reuters) - Indian government bond yields ended higher on Friday after the debt auction added to supply, while the benchmark yield posted its biggest weekly jump after the Reserve Bank of India's (RBI) monetary policy guidance on inflation hurt sentiment.
The 10-year benchmark 7.26% 2033 bond yield ended at 7.0356%, highest since May 10 and after closing at 7.0224% in the previous session. It rose five basis points this week, the biggest such move since the week ended February 10.
New Delhi raised 390 billion rupees ($4.73 billion) through the sale of bonds on Friday, with the cutoff for the longer-duration paper higher-than-expected.
"Most of the positives already priced in duration play. Abating of unusual demand and higher supplies in the coming months will keep the yields in tight range," said said VRC Reddy, treasury head of Karur Vysya Bank.
He said he does not expect the RBI to cut rates anytime soon due to resilient growth and moderation in inflation.
On Thursday, the RBI kept the key lending rate and stance unchanged as expected.
However, Governor Shaktikanta Das said it needed to move towards the primary target of inflation at 4%, and that it would do "whatever is necessary to ensure that long-term inflation expectations remain firmly anchored".
The RBI expects inflation to average 5.1% in this financial year. Analysts, however, do not see inflation easing sustainably to 4% near term, despite hitting an 18-month low of 4.70% in April.
HSBC expects no change in rates in 2023 and said the RBI's comments may come across as a shade hawkish. Overnight indexed swap rates also jumped, as traders pushed back the possibility of rate cuts to 2024.
Focus is now on inflation data in India and U.S. due next week, followed by the crucial Federal Reserve policy decision. The odds of a pause by the Fed next week rose to 75%.
