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MUMBAI: Indian government bond yields rose in the early trading session on Monday, tracking similar move in US yields, as data and commentary from a US Federal Reserve official further cemented bets of another rate hike.

The 10-year benchmark 7.26% 2032 bond yield was at 7.2393% as of 10:00 a.m. IST, after closing at 7.2252% in the last session.

“Since there is no fresh trigger for buying at these levels, people may wait for some correction in bond yields,” a trader with a state-run bank said.

US yields rose, with the 10-year yield rising above 3.50% and the two-year note rising above 4.10, following a mixed batch of economic data, while commentary from a Fed official further cemented bets of a rate hike.

The Fed is seen on track to increase its benchmark rate in May by another 25 basis points, as Fed Governor Christopher Waller said higher borrowing costs are needed to make better progress on the inflation fight.

Odds of a rate hike on May 3 have risen above 80%, against around 70% before the comments.

India bond yields tad higher ahead of debt auction

The current target range is 4.75%-5.00%, up from near zero last March.

Shorter-end government bonds may remain supported, as mutual funds will continue to load up shorter-term bonds, which are less likely to be hit by new tax rules.

Locally, traders will remained focused on the minutes of the Reserve Bank of India’s latest monetary policy meeting, in which it had surprised the markets by maintaining status quo on policy rates, against wide expectations of 25 bps hike.

India’s annual retail inflation for March was at 5.66%, below the RBI’s upper tolerance level of 6% for the first time in 2023 and the lowest since December 2021, further cementing bets that the RBI may maintain a prolonged pause.

India will switch bonds worth 110 billion rupees ($1.34 billion) later in the day, it its first such operation for the current financial year.

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