MUMBAI: Indian government bond yields were trading lower on Monday, tracking a similar move in US Treasury yields, while bets of inclusion of local debt in global indexes lifted sentiment.

The benchmark 10-year Indian government bond yield was at 7.2074% as of 0500 GMT.

The yield has risen four basis points in last two sessions to end at 7.2318% on Friday.

“After a brief rise in yields, the bulls are back taking the benchmark to 7.20%, and traders will wait to see further moves in US yields, as well as any progress towards index inclusion,” a trader with a state-run bank said.

US Treasury yields fell, with the 10-year yield easing below 3.20% after a closely watched report showed unemployment rising and job growth slowing in August.

Market participants now expect a 56% probability of the US Federal Reserve raising benchmark rates by three quarters of a percentage point at its meeting on Sept. 21, down from the 75% chance a day ago, according to CME’s FedWatch tool.

Underlying sentiment remains strong as investors expect some progress in Indian bonds being included in global indexes which could spur inflows, led by a sustained purchase of papers by foreign banks, traders said.

India bond yields inch higher ahead of debt sale

Morgan Stanley said it sees a “good chance” of JPMorgan including Indian government bonds in its index, and recommended going long on the 10-year benchmark bond yield.

“We now believe that there is a very good chance that JPM will announce the index inclusion of India’s bond market in mid-September,” Morgan Stanley said in a note.

“We like to add long 10-year G-Secs, targeting 25bp lower from here.”

India wants global bond index operators to consider local settlement of its government securities if they are included in their indexes, a government official said last week.