MUMBAI - Indian government bond yields ended marginally higher on Thursday mirroring U.S. peer, although trading volume remained thin.

The 10-year benchmark 7.26% 2032 bond yield ended at 7.4386%, after closing lower at 7.4180% on Wednesday.

"Local bond yields inched up following U.S. yields but the upward move was capped as this month there is no fresh supply of government bonds," Yogesh Kalinge, vice president at AK Capital Services, said.

The 10-year U.S. yield rose above the 4% mark for the first time in four months on Wednesday and it was last at 4.03%. Separately, the two-year yield climbed to 4.92%, its highest level since 2007.

U.S. yields rose as a series of nasty inflation surprises around the world spooked investors and stoked worry about interest rate hikes. The U.S. central bank has raised interest rates by 450 basis points to 4.50%-4.75% over the last year.

If the U.S. yields continue to rise, then Indian government bonds yields will also follow suit, Kalinge said, adding that the domestic benchmark yield may break the crucial 7.50% level in March.

In addition, interest rate hikes in the U.S. may also put pressure on the Reserve Bank of India to do the same. The RBI has raised the repo rate by 250 basis points since May 2022 to 6.50% and is widely expected to hike one more time in April.

India's retail inflation in January jumped to 6.52% and will pressure the central bank to tighten rates further, traders said.

In the absence of fresh cues, market participants will await fresh data points before taking any large positions, a dealer at a state-owned bank said.

Over the next week, the benchmark bond yield is expected to trade in the range of 7.42%-7.48%, according to market participants.

(Reporting by Bhakti Tambe; editing by Eileen Soreng)