MUMBAI (Reuters) - Indian government bond yields eased marginally on Thursday amid bets that pace of headline inflation due on Friday might slow further, while weaker-than-expected U.S. inflation helped gains.
Further fall in yields, however, was capped ahead of fresh supply of notes through the weekly debt auction also scheduled on Friday.
The 10-year benchmark bond yield was at 7.2773% at 0500 GMT, after ending at 7.3101% on Wednesday. It had fallen four basis points in the last session.
"Sentiment has received a boost," a trader with a private bank said, adding market participants exhibited a bullish bias expecting a softer inflation print.
Indian's retail inflation data for July is due on Friday. A Reuters poll of economists expects July inflation to temper down to 6.78% from 7.01% in June and the near eight-year high of 7.79% in April.
Bonds also took a breather tracking U.S. inflation reading that eased to 8.5% on-year for July, down from 9.1% in June, while Reuters poll had predicted the reading at 8.7%.
The 10-year U.S. Treasury yield had declined after the release of the data, but clawed back to end largely unchanged at 2.7860% on Thursday.
On Friday, India's central government is due to conduct sale of bonds including liquid five-year and 14-year notes for 320 billion rupees ($4.04 billion).
($1 = 79.2800 Indian rupees)
(Reporting by Dharamraj Lalit Dhutia; Editing by Neha Arora)