Indian bond yields seen marginally higher, tracking US peers

Indian government bond yields are likely to move slightly higher in early deals on Tuesday, tracking rise in U.S. Treasury yields.

The 10-year yield (IN067934G=CC) is likely to move between 6.76% and 6.79%, a trader with a private bank said, compared with its previous close of 6.7739%.

"There could be some upside to bond yields as Treasury yields have risen, but any large move could be safely ruled out and par levels for the benchmark bond price should continue to act as support," the trader said.

U.S. Treasury yields rose overnight, with the 10-year yield reaching its highest level in nearly seven months, after additional supply of debt at a time when many traders are inactive.

Underlying sentiment in the world's largest economy remained cautious, after the Federal Reserve last week cut its 2025 interest rate reduction forecast to 50 basis points from a 100 bps.

The odds of a pause in January stood at 91%, according to CME's FedWatch Tool.

Domestically, traders await fresh supply of debt in a holiday-truncated week, as markets will be shut on Wednesday for the Christmas holiday.

Indian states are expected to raise 306 billion rupees ($3.59 billion) through a sale of bonds later in the day, while New Delhi will raise 320 billion rupees through sale of debt on Friday.

Bond yields had dipped on Monday, after minutes of the Reserve Bank of India's latest monetary policy meeting indicated that an interest rate cut in February was possible.

In the minutes of its December meeting, the members of the rate setting panel said, high prices are the cause for demand slowdown in India, and aligning inflation to the central bank's 4% target is key to ensuring sustained economic growth.

The RBI kept its key interest rate unchanged earlier in the month, but cut banks' cash reserve ratio to improve liquidity conditions.

KEY INDICATORS:

** Brent crude futures BRN1! 0.5% higher at $73.00 per barrel, after easing 0.4% in the previous session

** Ten-year U.S. Treasury yield US10Y was at 4.5852%; two-year yield (US2YT=RR) was at 4.3345%

** Fifteen Indian states to raise 306 billion rupees via sale of bonds

($1 = 85.1200 Indian rupees)