MUMBAI: Indian government bond yields rose in the early session on Tuesday, tracking an uptick in US peers, ahead of a widely anticipated rate hike by the Federal Reserve.

The 10-year benchmark 7.26% 2033 bond yield was trading at 7.1274% as of 10:00 a.m. IST after closing at 7.1196% on Friday.

The benchmark bond yield had plunged 20 basis points in April, on bets of policy pivots.

We may see some consolidation today and tomorrow, as markets digest the impact of higher US yield and await the Fed policy decision and outlook, a trader with a state-run bank said.

US yields moved higher, with the 10-year yield rising above the 3.55% mark, and the two-year yield at 4.12%, after the government seized First Republic Bank and sold its assets to JPMorgan Chase & Co.

The move comes ahead of the Fed policy decision due on Wednesday, where a 25 basis-point rate hike is widely factored in, and major focus would be on Chair Jerome Powell’s comments.

India bond yields may rise tracking US peers ahead of debt supply

A hawkish Fed could influence the Reserve Bank of India, which maintained a pause on rates in a surprising move last month.

The market focus will also be on the demand for debt at auction in the holiday-shortened week.

Six Indian states aim to raise 102 billion rupees ($1.25 billion) via bond sale later in the day, while New Delhi will raise 330 billion rupees on Thursday.

The central government debt auction includes 140 billion rupees of benchmark 2033 paper.

A similar auction on April 21 witnessed stronger-than-expected demand and triggered a rally.

Some market participants also speculate demand for the benchmark paper from Housing Development Finance Corp during the course of the week as the non-banking finance company raises funds via debt issue.

HDFC aims to raise up to 150 billion rupees via 10-year bonds, leading to bets that they may invest part of the money in government securities.

Indian fixed income markets were shut on Monday and will be closed on Friday for a local holiday.