(Reuters) - Indian government bond yields are seen rising in early trades on Friday, as markets await fresh debt supply at weekly auction, while high U.S. Treasury yields may further rein in appetite.
The benchmark 10-year Indian government bond yield is likely to trade in 7.19%-7.25% band until the auction, a trader with a private bank said. The yield rose two basis points on Thursday to end at 7.2146%.
New Delhi is scheduled to raise at least 330 billion rupees ($4.14 billion) through sale of bonds, and the auction includes 130 billion rupees of 7.26% 2032 note , which is expected to replace the existing benchmark paper soon.
"The sudden spike in U.S. yields will definitely weigh on sentiment and benchmark (bond) could inch towards 7.25% in the session," the trader said. "Cut-offs at auction would be crucial trigger."
Meanwhile, U.S. Treasury yields persisted in upward momentum, with the 10-year yield nearly touching 3.30%, ahead of non-farm payrolls data due on Friday.
Investors are anticipating strong job reports that could spur further aggressive monetary tightening by the U.S. Federal Reserve. Interest rate futures imply 75% chance of a 75 basis point rate hike this month.
Intraday, investors to watch for clues towards inclusion of Indian bonds in global indices, which could spur more foreign inflows.
India wants global bond index operators to consider local settlement of its government securities, if they are included in their indices, a government official said on Thursday.
Media reports last week said JPMorgan had started new consultations with investors about adding India to its emerging market index, rekindling expectations of an imminent listing of the country's securities.