India bond yields inch up ahead of debt sale on Friday

By Dharamraj Dhutia

MUMBAI, Nov 21 (Reuters) - Indian government bond yields trended marginally higher in early deals on Thursday as U.S. yields stayed elevated, while market participants awaited fresh supply through a weekly debt auction on Friday.

The benchmark 10-year bond yield was at 6.8195% as of 10:00 a.m. IST, compared with its close of 6.8125% on Tuesday. Indian markets were shut on Wednesday for a regional election.

"Supply is the main trigger, and with the third auction, short sellers are expected to become more active, but any upward move would be very slow and gradual," a trader with a primary dealership said.

New Delhi will sell benchmark bond worth 220 billion rupees ($2.61 billion), which will help increase liquidity and trading in this paper, as well as give more comfort to short sellers.

Additionally, the Reserve Bank of India will sell treasury bills worth 190 billion rupees later in the day.

Bond yields have recently followed U.S. Treasury yields higher on easing bets of a Federal Reserve interest rate cut next month. The 10-year U.S. yield was around 4.40%, with the action in December's Federal Reserve meeting becoming almost a coin toss.

Traders have now assigned only a 55% chance of a Fed rate cut next month, down from 83% last week, according to the CME FedWatch tool.

Locally, sentiment stayed mildly supported as calls from the government for monetary policy easing have grown stronger.

Finance Minister Nirmala Sitharaman said earlier this week that economic growth required "far more affordable" bank interest rates.

This follows trade minister Piyush Goyal's comment last week saying the RBI should cut rates to boost economic growth and look through food prices while deciding on monetary policy.

Domestic inflation accelerated to 6.21% in October, breaching the RBI's target range of 2%-6% for the first time in 14 months and dashing out December rate cut bets. ($1 = 84.4150 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman)