MUMBAI, Jan 20 Indian government bond yields ended higher on Friday after easing for the last two sessions as investors remained cautious ahead of the budget at the weekly debt auction, extending the selloff towards the end of the day.
The benchmark 10-year yield ended at 7.3478% after closing lower at 7.3137% on Thursday. The yield rose five basis points (bps) this week, after easing seven bps last week.
A constant rise in oil prices and U.S. yields coming off their lows also weighed on investor sentiment.
"The 10-year bond is likely to continue the bearishness as the spike in oil prices and fear of higher borrowing by the central government may keep real money buyers on the back foot," said VRC Reddy, treasury head of Karur Vysya Bank.
"When we move into the budget date, the 10-year bond yield is likely to test the 7.38%-7.40% levels. The next leg of direction will come from budget numbers and the pattern of borrowing."
New Delhi raised 280 billion rupees ($3.45 billion) on Friday through a sale of bonds, which includes the benchmark paper that was sold at weaker-than-estimated cutoff price.
Short positions in the benchmark note also rose after a fall in yields over the last two sessions, traders said.
Traders are waiting for the Union budget that will be tabled on Feb. 1, with the government's fiscal consolidation path and its borrowing calendar for fiscal year 2024 set to be the next market-moving trigger.
Most foreign banks expect gross supply in the range of 15.50 trillion rupees to 16.80 trillion rupees, with Barclays and Goldman Sachs on the higher side.
The shorter-tenor government bond yields are expected to fall further on bets of a turn in monetary policy later in the year, and as foreign banks accelerate their bond purchases in the new year, analysts said.
Meanwhile, the 10-year U.S. yield rose 10 bps from Thursday's low of 3.32%, while the benchmark Brent crude contract was set to post its second weekly rise. The contract was at $86.65 per barrel. ($1 = 81.1750 Indian rupees)
(Reporting by Dharamraj Dhutia Editing by Sohini Goswami)