New Delhi is set to raise 280 billion Indian rupees ($3.38 billion) through the sale of bonds on Friday, which includes 120 billion rupees of the benchmark paper.
The benchmark 10-year government bond yield ended at 7.4767%, after ending at 7.4510% on Wednesday. The yield has risen by seven basis points in three sessions.
"Bonds have reacted to global moves and as the rupee slipped sharply. But with the currency recovering from lows, we may see benchmark yield holding around the current levels," said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.
The Indian rupee slid to a low of 83.2900 per dollar on Thursday, hitting a record low for the second consecutive session on fears over rising interest rates.
The currency will fall further to 84.50 by December, a Reuters poll on Thursday showed, setting it up for its steepest annual decline in at least nine years due to a widening domestic trade balance and surging U.S. interest rates.
The 10-year U.S. yield rose to a 14-year high, while the two-year yield, a more direct indicator of rate expectations, jumped to its highest in over 15 years on bets of aggressive rate hikes.
The Fed has already raised rates by 300 basis points since March and is expected to hike rates by 75 bps in each of its next two meetings.
Such aggressive hikes may put pressure on the Reserve Bank of India to follow suit, although the minutes of RBI's latest meeting had indicated a softer guidance on policy rates.
The RBI has raised rates by 190 basis points from May to September to combat elevated inflationary pressures. ($1 = 82.8600 Indian rupees)
(Reporting by Dharamraj Lalit Dhutia; Editing by Savio D'Souza)
By Dharamraj Dhutia
