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MUMBAI: Indian government bond yields were largely unchanged in the early session on Thursday, as traders continue to await fresh triggers.

The 10-year benchmark 7.26% 2032 bond yield was at 7.4577% as of 9:45 a.m. IST, after closing higher at 7.4547% on Wednesday.

“We are closely tracking the moves in US Treasuries and as they were steady overnight, we may not see any major moves today, with yet another day when volumes will struggle,” a trader with a state-run bank said.

US Treasury yields stayed elevated, with the shorter-end rising, after data showed the labour market remained tight and Federal Reserve Chair Jerome Powell set the stage for higher and faster interest rate hikes.

The two-year yield, a closer indicator of rate expectations, was at 5.05% and the yield curve inversion between the two-year and 10-year stayed above 100 bps.

After Powell’s comments on Tuesday, Fed funds futures have priced in a more-than-68% chance of a 50 basis points (bps) rate hike, potentially as soon as the central bank’s next policy announcement on March 22.

The market has fully factored in an additional 100 bps hike in the coming months.

The Fed has raised rates by 450 bps, to 4.50%-4.75%, over the last year and a continued aggressive policy could force the Reserve Bank of India (RBI) to follow suit.

The RBI has raised the repo rate by 250 bps to 6.50% this financial year and is likely to increase it by 25 bps in April.

Indian bond yields jump as bets of larger Fed rate hike rise

Meanwhile, market participants suggest the government should restrict borrowing in the first half of the next fiscal to 55% of the target, with a higher share of longer-tenor bonds. India aims to raise 15.43 trillion rupees ($188.47 billion) via the sale of government bonds next financial year.

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