MUMBAI: Indian government bond yields are likely to trend marginally higher in the early session on Tuesday, after the Reserve Bank of India’s (RBI) recent commentary on inflation, even as the market awaits fresh supply from states via debt auction.

The benchmark 7.26% 2033 bond yield is expected to be in the 7.07%-7.12% range after ending the previous session at 7.0758%, a trader with a primary dealership said.

“There could be some reversal from yesterday’s fall in yields, as the comments from the RBI show they are still very cautious in terms of inflation expectations,” the trader said.

“Still, after the initial rise, there could be range-bound moves.”

Food price spikes in the country, typical at the onset of the monsoon, drove up headline inflation in June, corroborating the monetary policy committee’s (MPC) view that the fight against inflation was far from over, the RBI said on Monday.

“Monetary policy has to stay the course on the arduous last leg of the journey to align inflation with the target,” the central bank said in its State of the Economy article, published as a part of its monthly bulletin.

India’s annual retail inflation rate rose to 4.81% in June, snapping four months of easing and erasing any chance of early rate cuts.

India bonds yields track US peers higher

US yields remained largely unchanged with markets closely watching Federal Reserve Chairman Jerome Powell’s tone at the US central bank’s July 25-26 meeting, where a rate hike is already factored in, and commentary would be crucial.

The odds of a 25-basis point (bps) hike in July remain around 92%, but that of another hike after that have come down sharply.

Meanwhile, Indian states aim to raise 124.30 billion Indian rupees ($1.52 billion) through the sale of bonds later in the day, and the quantum is lower than scheduled.

New Delhi will also raise 310 billion rupees through the sale of bonds on Friday, and this includes a new 14-year bond worth 140 billion rupees.

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