MUMBAI: Indian government bond yields rose in the early session on Friday, mirroring a similar move in US yields, as bets that the Federal Reserve will go ahead with a rate hike next week rise.

The 10-year benchmark 7.26% 2032 bond yield was at 7.3750% as of 10:00 a.m. IST, after closing lower at 7.3526% on Thursday.

“With efforts being taken to control the impact of financial sector turmoil, it seems Fed rate hikes are back on the table at least for the March meeting,” a trader with a primary dealership said.

US yields rose on Thursday, as banking worries eased on news of financial support for embattled lenders Credit Suisse and First Republic Bank.

Credit Suisse became the first major global bank to be thrown an emergency lifeline since the 2008 financial crisis as fears of contagion swept across the banking sector globally.

The 10-year US yield rose nine basis points to end at 3.58% on Thursday, while the two-year yield, which is a closer indicator of interest rate expectations, rose 16 bps to end at 4.13%.

Indian bond yields dip as US peers resume fall, rate pause bets rise

The Fed’s policy decision is due on March 22, with Fed funds futures now pricing in an 81% chance for a quarter-point rate hike, up from 65% on Thursday.

Back home, traders reckon, a rate hike from the Fed would increase the chances of the Reserve Bank of India also following the same path in early April as local inflation stays elevated.

The RBI raised the repo rate by 250 basis points in the current financial year to 6.50%, while retail inflation remained above the upper threshold for two straight months in February.

Meanwhile, the government bond yield curve is likely to steepen in the new fiscal year, with longer-end yields rising due to heavy supply and the shorter-end falling amid the global repricing of rate hike bets, analysts said.