MUMBAI: Indian government bond yields were trading marginally lower on Monday, as U.S. yields pulled back sharply from last week's highs, although the dip in domestic yields was capped as traders awaited a heavier-than-scheduled supply from states.
The 10-year benchmark 7.26% 2032 bond yield was at 7.3992% as of 10:10 a.m. IST, after closing lower at 7.4161% on Friday. The market will be shut on Tuesday for a local holiday.
"The moment in U.S. yields started looking worrisome but there was some cooling and, hence, the benchmark is back to sub 7.40% levels," a trader with a state-run bank said.
Treasury yields slipped on Friday, after hitting new highs earlier in the week, following comments from Federal Reserve officials that temporarily calmed fears around the direction of inflation and interest rates.
The 10-year U.S. yield touched a four-month high of 4.09% on Thursday, but eased after likely short covering, traders said. It was last at 3.95%.
Treasury yields had been rising on bets that the Fed may continue to hike rates for longer. The Fed has raised rates by 450 basis points (bps), to 4.50%-4.75%, over the last year and at least three more hikes of 25 bps each are fully factored in.
Meanwhile, Indian states aim to raise 289.58 billion rupees ($3.54 billion), which is above the scheduled amount for the first time in seven months.
The higher supply comes at a time when worries over higher inflation – prices jumped to 6.52% in January – continue to dent sentiment. Barclays expects the inflation of 6.3% for February.
The Reserve Bank of India has raised the repo rate by 250 bps since May 2022, to 6.50%, and is widely expected to hike rates again by 25 bps in April. ($1 = 81.8175 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)