MUMBAI, Aug 8 (Reuters) - Indian government bond yields traded higher on Monday, extending its rise after the central bank's interest rate hike and hawkish commentary last week, while a spike in U.S. Treasury yields weighed on investor sentiment.
Bond market participants now await a debt auction from Indian states to gauge investor appetite. The states aim to raise 138 billion rupees ($1.74 billion)through sale of bonds six years to 23 years on Monday.
The 10-year benchmark bond yield was at 7.3423%, as of 0445 GMT. It had risen to 7.3654% earlier in the session after closing 14 basis points higher at 7.3005% on Friday, when it posted the biggest single-day gain in three months.
"Sentiment had turned bearish after the monetary policy decision, and rising U.S. yields have further hampered chances of any recovery in bond prices," said a trader with a primary dealership.
U.S. Treasury yields rose on Friday, with the 10-year yield climbing 16 basis points to end at 2.8400%, its biggest such move in nearly two months after strong U.S. non-farm payroll data.
The U.S. Treasury yield curve has inverted by as much as 45 bps after the data, as the market has started expecting another 75-bp hike from the Federal Reserve in September. The Fed raised rate by 75 bps in June and July.
The Reserve Bank of India raised the key lending rate, or repo rate, by 50 basis points on Friday, the third increase in the current cycle, to tame the stubbornly high inflation that has remained above its tolerance band for six straight months.
The RBI is likely to hike its key policy rate by upto 60 basis points by the end of 2022, before taking a pause, with the pace likely slowing down, analysts said.
"We expect a 35 bps hike at the next meeting in September and a final 25 bps hike in December, before growth concerns and the cumulative rate hikes delivered thus far, lead the MPC to shift into an extended pause," Nomura said in a note.
India's headline retail inflation data for July is due on Friday. ($1 = 79.5000 Indian rupees) (Reporting by Dharamraj Lalit Dhutia Editing by Dhanya Ann Thoppil)
