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Indian government bond yields extended gains at the start of the week, with the benchmark yield at a more than two-week high, tracking the rise in US Treasury yields.
The benchmark 10-year yield was at 7.0754 per cent as of 10:10 a.m. IST on Monday, following its previous close of 7.0644 per cent. Earlier in the day, the yield rose to 7.0798 per cent, the highest since March 1.
"All the factors are bearish now, with US yields threatening to test new highs in the run up to the Federal Reserve policy decision later this week," a trader with a state-run bank said.
US bond yields rose in all five trading sessions last week, with the 10-year yield jumping 22 basis points, marking its biggest rise in five months. The yield is hovering around the critical level of 4.30 per cent, a breach of which could lead to more gains.
The rise in yields is fuelled by indications of a robust economy and elevated inflationary pressures, which have led to concerns over the possibility of fewer interest rate cuts by the Federal Reserve this year.
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Traders await the Fed policy decision due on Wednesday amid rising uncertainty about whether the US central bank would start rate cuts later than the widely-expected June timeframe, with chances of an updated dot plot showing only two cuts in 2024, instead of the previously expected three.
The odds for a rate cut in June have eased to 58 per cent from 74 per cent last week, according to the CME FedWatch tool.
Meanwhile, Indian states are aiming to raise a record 502.06 billion rupees (about $6 billion) through bonds on Tuesday. The supply comes at a time when many investors are completing their investment targets for the financial year.
"The state debt supply is a shocker and even though long-term investors would absorb, we could see some pressure on yields," the bond trader said.
