MUMBAI: Indian government bond yields are likely to open marginally higher on Thursday as the 10-year US yield crossed the 3.75% mark, which may weigh on sentiment.

The 10-year benchmark 7.26% 2033 bond yield is expected to be in the 6.98% to 7.03% range after closing at 6.9920% in the previous session.

With a dearth of action based on local factors, traders may keenly watch the moves in US Treasuries which are pointing towards a bearish movement, a trader said.

US yields rose further on Wednesday, as debt ceiling talks continued with yields on some bills due for repayment on June 1 rising above the 7% mark.

The 10-year yield was at 3.75%, while the two-year yield was at 4.41%. Even though minutes of the Federal Reserve’s May meeting showed there was agreement among policy makers that the case for further interest-rate tightening had become less certain, recent comments from some officials pointed otherwise.

The remarks fuelled uncertainty about whether the central bank will pause its rate-hiking cycle as officials were not in unison about the path of monetary policy.

Indian bond yields inch higher, 10-year hits 7% tracking US peers

This has pushed the odds of another 25-basis points rate hike on June 14 to 35%, from 28.1% on Tuesday, and nearly 5% at the beginning of this month.

The Fed has raised rates by 500 bps since March 2022 to 5.00%-5.25%.

Bond yields dipped on Wednesday after Reserve Bank of India Governor Shaktikanta Das said countries holding excess rupees in their vostro accounts in India can invest the surplus in government securities and Treasury bills.

The RBI has allowed this since July 2022.

Bond yields have been easing since the last few days on speculations that there has been buying on behalf of Russian banks and companies that have parked funds with local banks.