MUMBAI, Aug 21 (Reuters) - Indian government bond yields are starting the week marginally higher as their U.S. counterparts continue to remain elevated above crucial levels.
The benchmark 7.26% 2033 bond yield was last at 7.2208% as of 10:00 a.m. IST, after ending the previous session at 7.2172%.
"With literally nothing in local markets to track, bond yields will track Treasuries on a tick-to-tick basis, which is evident from early trading trends at the start of the week," a trader with a state-run bank said.
U.S. yields continue to remain elevated as traders adjust for the likelihood that the Federal Reserve will hold rates higher for longer amid solid economic data, with the focus on bringing inflation closer to its 2% annual target.
Fed funds futures traders are pricing in around 110 basis points (bps) of rate cuts in 2024, down from around 140 bps a few weeks ago. The Fed has raised rates by 525 bps since March 2022 to the 5.25%-5.50% range.
The 10-year U.S. yield was trading at 4.28%, after having risen an aggregate of 43 bps in the last five weeks. The two-year yield was at 4.95%, with the inversion slipping below 70 bps.
Traders also await comments from Fed Chair Jerome Powell later in the week to gauge the Fed's interest rate trajectory.
Bond yields also rose after India's July retail inflation spiked to a 15-month high of 7.44% from 4.87% in June, implying that the central bank may turn more hawkish even if it does not go for another rate action.
Still, market participants remain confident that the benchmark bond yield may not rise much after strong resistance seen last week.
Ashhish Vaidya, managing director and head of treasury and markets at DBS Bank India and Parul Mittal Sinha, head financial markets, India and head – macro trading, South Asia at Standard Chartered Bank, said they do not expect the yield to cross 7.25%. (Reporting by Dharamraj Dhutia Editing by Sonia Cheema)
