MUMBAI: Indian government bond yields rose on Tuesday after the 10-year US Treasury yield crossed the 3% mark to hit a five-week high, with market participants also fretting about persistent inflationary headwinds.

Traders are also awaiting debt supply from states, which are scheduled to raise 68 billion rupees ($851.35 million) through the sale of 10-year to 24-year bonds.

The size of funds, however, is less than half of 152 billion rupees they were expected to raise.

The benchmark 10-year government bond yield was at 7.2960% as of 0505 GMT.

The yield has risen 9 basis points in last three sessions and ended at 7.2702% on Monday.

“With the rapid move in 10-year US yield to above 3.00%, there is an element of caution in Indian bonds,” a trader with a state-run bank said. “Inflation worries are also running at the back of traders’ minds.”

India bond yields rise tracking US peers

The rise in 10-year US yield on Monday came as investors expect the Federal Reserve to reinforce its commitment to tackle inflation by hiking rates.

Fed Chair Jerome Powell is scheduled to speak at the Jackson Hole symposium on Friday, and traders are expecting him to further stress on inflation management.

The US Federal Reserve has hiked rates by 225 basis points since March, including two back-to-back 75 basis points hike in June and July.

Odds of another 75 basis point rate hike by the Fed next month are also slightly higher than that of a 50 basis points increases, according to the CME FedWatch Tool.

Market participants remain cautious after members of the Reserve Bank of India’s monetary policy committee highlighted inflation concerns in minutes of a rate-setting meeting.

India’s consumer inflation dipped to 6.71% in July, easing for the third month in a row, but continues to remain above the RBI’s mandated target band of 2-6% for a seventh straight month.

The RBI had raised the bank’s key lending rate by 50 basis points to 5.40%, its third increase in four months, to curb rising price pressure in August.

The RBI has hiked repo rate by 140 basis points since May.