MUMBAI, Aug 4 (Reuters) - Indian government bond yields ticked higher early on Friday, with the benchmark bond yield threatening to break 7.20% levels before a fresh supply of debt through the weekly auction.
Elevated U.S. yields and declining local currency kept hurting investor sentiment.
The benchmark 7.26% 2033 bond yield was at 7.2025% as of 10:00 a.m. IST after ending the previous session at 7.1981%.
New Delhi aims to raise at least 390 billion rupees ($4.71 billion) through the sale of bonds, which includes liquid seven-year and 14-year bonds.
"Since the benchmark is at a critical level, it is holding but other notes, especially the ones that are a part of the auction pool, are seeing strong offers," a trader with a state-run bank said.
"Apart from demand, the move in rupee and Treasuries will continue to be in the limelight."
The Indian rupee was trading around its lowest levels against the dollar in nearly two months as risk sentiment continued to remain weak.
Longer-duration U.S. yields hit fresh nine-month highs on Thursday as data showed underlying strength in the economy, which could see rates remaining higher for longer.
The benchmark U.S. 10-year yield hit 4.20% on Thursday, the highest since early November. The odds of a rate hike in September are just around 18%.
Meanwhile, worries that retail inflation will jump again in the near term are keeping investors at bay as it could force the Reserve Bank of India to take a hawkish stance at its policy decision on Aug. 10.
India's retail inflation jumped to 4.81% in June, after easing for four months. Many economists are expecting the July reading to rise to around 6.5%, which will break the RBI's upper tolerance range. ($1 = 82.7370 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Sohini Goswami)
