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MUMBAI: Indian bond yields stabilised after rising to a near two-year high in early trade as a retreat in global crude oil prices helped calm investor nerves, but yields are likely to stay high unless the Reserve Bank of India steps in to support markets.

India's benchmark 10-year bond yield was trading steady on the day at 6.52% by 0655 GMT, after earlier rising to 6.54%, its highest level since Jan. 31, 2020.

"States have revised up their Q4 borrowing, inflation is high, US yields inching higher, crude prices holding up and the weekly bond sale. All factors together are likely to keep pressure on yields unless the RBI steps in with some support measures," a senior trader with a private bank said.

Oil prices dropped on Wednesday after US fuel stockpiles climbed, indicating declining demand in the world's biggest oil consumer amid a massive spike in COVID-19 cases caused by the Omicron variant. However, overnight global crude oil prices had jumped to their highest since November.

State governments on Friday revised their January-March borrowing through bonds to 3.24 trillion rupees ($43.48 billion) from 3.04 trillion rupees earlier and compared to 2.02 trillion rupees in October-December.

With heavy debt supply in the last quarter of the fiscal year amid high inflation, traders are reluctant to buy debt without more direct support from the central bank in the form of simultaneous bond buys and sales or direct bond purchases from the market.

US Treasury yields for most maturities rose on the second trading session of the year as bond investors geared up for interest rate hikes from the Federal Reserve by mid-year to curb stubbornly high inflation.

Concerns are also high over the RBI pulling out more cash from the banking system to contain inflationary pressures. The central bank expects retail inflation at 5.1% for October-December period and 5.7% for January-March quarter in the current financial year.

"We expect the 10-year yield to trade in the range of 6.48-6.54% today," HDFC Bank Treasury Desk wrote in a daily note.

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