MUMBAI, Aug 14 (Reuters) - Indian government bond yields are expected to rise in early session on Monday, tracking an upward move in U.S. yields, while the focus will remain on the state debt auction later in the day for further cues on demand.
The benchmark 7.26% 2033 bond yield is likely to be in the 7.18%-7.24% range, after ending the previous session at 7.2021%, a trader with a primary dealership bank said.
"The benchmark yield will follow U.S. peers in early trade but may trade in a narrow range during the day as traders are unlikely to build heavy positions in a holiday-truncated week," the trader said.
India's fixed income markets will be shut on Tuesday and Wednesday due to local holidays.
U.S. yields rose on Friday after producer price inflation came in hotter than expected. Traders fear that the resurgence in price pressures could increase chances that the Federal Reserve will need to continue hiking rates.
Market participants will also await domestic inflation data, due later in the day. India's retail inflation likely accelerated to 6.40% in July on surging food prices, as per a Reuters poll.
The Reserve Bank of India (RBI) raised its inflation forecast for the quarter and the financial year on Thursday and held its key lending rate steady at 6.50% for the third straight meeting.
"By doing a 'temporary' liquidity swipe, RBI has done a quasi-rate hike of a smaller quantum, but nevertheless something to tackle rising inflation," said Anitha Rangan, economist at Equirus Group.
"In all likelihood, if inflation turns stickier on the food side, then the measure could be supplemented with a rate action as well." KEY INDICATORS: ** Brent crude futures was 0.2% lower at $86.62 per barrel, after rising 0.4% in previous session ** 10-year U.S. Treasury yield at 4.1796%, two-year yield at 4.9201% ** Nine Indian states aim to raise 132 billion rupees ($1.59 billion) through the sale of bonds
($1 = 82.8740 Indian rupees) (Reporting by Bhakti Tambe; Editing by Sonia Cheema)
