MUMBAI - Indian government bond yields ended higher on Wednesday, as sentiment turned bearish after comments by Federal Reserve chair Jeremy Powell sparked a spike in U.S. yields and raised bets of aggressive moves later in the month.

The 10-year benchmark 7.26% 2032 bond yield ended at 7.4547%, after closing at 7.4262% on Monday. Indian markets were shut on Tuesday for local holiday.

"The commentary has dampened market sentiment and raised chances of a 50-basis point (bps) rate hike in March, which led to sharp moves in U.S. and Indian yields," said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.

"There are high chances of a test of 7.50% on the Indian 10-year bond yield in the next few sessions."

U.S. Treasury yields rose, with the 10-year yield near the 4% mark, while those of the two-year bonds moved above the 5% handle to near their highest levels in nearly 16 years. Two-year bonds are a closer indicator of interest rate expectations.

The yield curve inversion between the 10- and two-year bonds jumped over 100 bps, a level last seen in 1981, after Powell indicated the U.S. central bank will likely need to raise interest rates more than expected considering recent strong data and is prepared to take bigger steps to control inflation.

Fed funds futures are now pricing in a more than 62% chance of a 50-bps hike at the bank's March policy meet, while the market has fully factored in an additional 100-bps increase in the coming months.

The Fed has raised rates by 450 bps to 4.50%-4.75% over the last year, and a further aggressive increase could force the Reserve Bank of India (RBI) to follow suit.

Back home, the one-year government debt yield rose above that of the 10-year note on Wednesday, following higher-than-expected cutoffs at a treasury bills' sale, briefly inverting the yield curve for the first time in nearly eight years.

Meanwhile, the government should restrict borrowing in the first half of next fiscal year to 55% of the target with a higher share of longer-tenor bonds, market participants said in their discussions with the central bank last week, multiple traders said on Wednesday.

(Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman)