India bond yields end higher for second-straight session

By Dharamraj Lalit Dhutia

MUMBAI, Aug 8 (Reuters) - Indian government bond yields ended higher on Monday for a second consecutive session tracking a hike in key policy rate from the Reserve Bank of India as well as rise in U.S. Treasury yields.

The 10-year benchmark bond yield IN065432G=CC ended at 7.3485%. It had closed 14 basis points higher at 7.3005% on Friday, when it posted the biggest single-day gain in three months.

"Bond markets have opened the week on a weaker note," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, adding that continued secondary market open market bond sales by the central bank had created further stress of absorbing supplies.

The RBI hiked the key lending rate, or repo rate INREPO=ECI , by 50 basis points on Friday, the third such increase in the current cycle to rein-in inflation that has stayed above the RBI's tolerance band for six straight months.

The RBI is likely to raise its key policy rate by upto 60 basis points by the end of 2022, before taking a pause, with the pace likely slowing down, analysts said.

Indian bond yields also tracked higher benchmark 10-year U.S. Treasury yields US10YT=RR that had climbed 16 basis points on Friday to end at 2.8400%, its biggest such move in nearly two months after strong U.S. non-farm payroll data.

"Given the uncertainty around the global monetary policy stance amidst inflation-growth trade-off, we expect the (Indian) 10-year (bond) yield to trade in a broader range of 7.20%-7.45% in the near term," Kotak Mahindra Bank's Bhardwaj added.

Earlier on Monday, Indian states raised 138 billion rupees ($1.73 billion) through bond sales at cutoff yields which rose sharply from last week.

Traders await headline retail inflation INCPIY=ECI data for July on Friday that would further indicate monetary policy direction.

Barclays expects retail inflation reading at 6.65% in July, its lowest level in five months due to declining food prices as compared to 7.01% in June and a near eight-year high of 7.79% in April.

On Tuesday, Indian markets will remain shut for a local holiday. ($1 = 79.5650 Indian rupees)
Reporting by Dharamraj Lalit Dhutia Editing by Neha Arora

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