MUMBAI - Indian bond yields edged lower on Tuesday after the government cancelled a second straight weekly debt auction on the back of comfortable cash balances, while in-line retail inflation data also aided sentiment.

The benchmark 10-year bond yield was trading at 6.62%, down 5 basis points on the day. It has now erased all losses made since the budget on Feb. 1 when the session low for the 10-year was at 6.65%.

Yields had surged sharply after the budget, with the 10-year rising to as high as 6.95% in subsequent days, on account of the record market borrowing announced for the next fiscal year and a higher-than-expected fiscal deficit target.

India's retail inflation is now over the upper limit of the Reserve Bank of India's tolerance band, accelerating to a seven-month high just above 6% in January, though economists don't expect this to lead to a rate hike in the near future. 

(Reporting by Swati Bhat and Savio Shetty; Editing by Kim Coghill) ((swati.bhat@thomsonreuters.com; twitter.com/swatibhat22; +91-22-68414381; Reuters Messaging: swati.bhat.thomsonreuters.com@reuters.net))