(Reuters) - Indian government bond yields might trade marginally higher on Friday, tracking a spike in U.S. peers, although gains may be limited ahead of local retail inflation data.
Market participants also awaited results of the weekly debt auction to gauge investor appetite, although action could be tepid ahead of the long weekend. Indian money markets will be closed on Monday and Tuesday.
The benchmark 10-year government bond yield is likely to trade in a 7.26%-7.31% band until the auction, a trader with a private bank said. The bond yield closed at 7.2673% on Thursday and has eased by eight basis points in the previous two sessions.
"There may be some reversal from the falling trend of last two days, because U.S. yields have jumped again, but major moves could be seen only after the debt sale," the trader said.
New Delhi will conduct sale of bonds for 320 billion rupees ($4.02 billion) and the auction includes liquid five- and 14-year notes among other notes.
U.S. Treasury yields rose, with the 10-year yield climbing 10 basis points on Thursday, as investors bet the Federal Reserve will continue hiking rates as inflation remains high, even though price pressures eased recently.
Still, market participants expect India's latest inflation reading to have eased, a move which would mirror its U.S. counterpart.
India's retail inflation data for July is due on Friday. A Reuters poll showed July inflation may temper down to 6.78% from 7.01% in the prior month.
U.S. consumer prices rose 8.5% in July from a year earlier, down from 9.1% in the previous month and below an 8.7% forecast by economists in a Reuters poll.
Stubborn inflation has been a major concern for the Reserve Bank of India despite the central bank raising key policy rate by 140 basis points since May.
KEY INDICATORS: ** Brent crude futures down 0.6% at $98.97 per barrel ** Ten-year U.S. note yield at 2.8766% ** RBI to set underwriting fees for 320 billion rupees weekly bond auction ** India to sell federal government bonds worth 320 billion rupees ** RBI to conduct 14-day variable rate reverse repo auction for two trillion rupees