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MUMBAI: Indian government bond yields turned flat after posting an uptick for the first two trading sessions of 2024 as traders shifted their focus to U.S. Treasury yields that started the New Year with a marginal rise.

The Indian 10-year benchmark bond yield was at 7.2003% as of 10:00 a.m. IST, after closing at 7.2105% in the previous session.

“As markets settle to the reality of heavy supply in the quarter, Treasury yields have also started inching higher, and that would be a crucial trigger as we progress into the first month of the year,” the trader said.

U.S. bond yields moved higher after trading resumed on Tuesday as the market lowered expectations for rate cuts in 2024.

Even as the market is pricing in that the Federal Reserve will start cutting key policy rates from March, the probability has eased to 77% from around 89% last week.

India bond yields up marginally ahead of state debt sale

The odds of a 150-basis-point rate cut in 2024 have also eased to 72% against 84% last week.

The 10-year yield, which dropped 100 bps in November-December, was close to 3.95% in Asian hours, as investors monitor economic data this week, including non-farm payroll due on Friday, that may influence whether the Fed begins to cut rates in March.

Back home, investors digested a record borrowing plan by states for the last quarter of the financial year as they aim to raise 4.13 trillion rupees ($49.58 billion), including 160 billion rupees raised on Tuesday.

The spread between 10-year state bonds and the benchmark government bond yield rose to a two-year high and investors are expected to continue demanding higher premiums over federal government debt in the coming weeks.

Traders will also keep an eye on foreign investments that notched a remarkable jump in the last three months of 2023, with inflows reaching a six-year high.

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