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MUMBAI: Indian government bond yields rose on Monday, with the benchmark 10-year yield rising above a key 7.50% level, driven by a relentless spike in US yields and high oil prices.

The benchmark Indian 10-year government bond yield was at 7.5007% as of 0435 GMT. It had ended at 7.4596% on Friday, and rose an aggregate 29 basis points in last four weeks.

“Broadly, local yields should continue their rise until US yields and oil cool off,” a trader with a state-run bank said, adding that a fall in yields on Friday was a “one-off” due to short covering.

Market participants expect the 10-year US yield to touch 4% and benchmark Brent crude contract to rise above $100 per barrel.

The 10-year US Treasury yield was around 3.90% after a strong jobs report affirmed the bets of another 75 basis points rate hike by the Federal Reserve in November.

Indian Bond yields seen rising ahead of government debt auction

Nonfarm payrolls increased by 263,000 jobs last month, the Labor Department said in its report, above the 250,000 estimate of economists polled by Reuters.

The unemployment rate fell to 3.5% from the 3.7% in the prior month.

The benchmark Brent crude contract inched closer to $100 per barrel after jumping more than 11% last week - its biggest such move in six months - as the Organization of Petroleum Exporting Countries and allies, together known as OPEC+, agreed to make its largest supply cut since 2020.

India is one of the largest importers of oil, and higher prices of the commodity have a direct impact on its inflation.

India’s retail inflation accelerated to a five-month high of 7.30% in September due to surging food prices, staying well above the Reserve Bank of India’s upper tolerance band for a ninth month, a Reuters poll found.

Meanwhile, analysts expect foreign funds to continue to trim their holdings in India’s government debt after J. P. Morgan delayed the inclusion of the country’s bonds in its global index, which sparked a further rise in yields.

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