MUMBAI: Indian government bonds were trading sideways, with yields flattish in early session on Friday as traders awaited the bidding pattern for debt auction as well as cutoffs to provide direction for the day.

The 10-year benchmark 7.26% 2033 bond yield was at 6.9724% as of 10:00 a.m. IST, after closing at 6.9824% on Thursday.

New Delhi aims to raise 330 billion rupees (4 billion) through the sale of bonds later in the day.

The auction includes 140 billion rupees of the benchmark paper. “At these levels, there is no cue to take the market either way.

Hence, appetite for debt auction, especially the benchmark paper, becomes crucial,“ a trader with a primary dealership said.

The debt sale comes at a time when market sentiment has improved as US yields declined sharply.

The 10-year US yield is down 20 basis points from its recent high at 3.61% as drop in new manufacturing orders and lower labour costs aided, while a debt-ceiling bill advanced in Washington.

India bond yields may dip as US peers ease

Recent comments from Federal Reserve officials favouring a pause in the June policy have also helped, with the two-year yield, a closer gauge of interest rate expectations, easing around 30 bps from its highs at 4.35%.

The odds of a Fed pause in June have risen to over 70%, which is in sharp contrast to bets of a 25-bps hike that were in a similar range a few days ago.

The Reserve Bank of India is scheduled to announce its monetary policy decision on June 8 and most market participants expect the central bank to keep the repo rate unchanged at 6.50% as inflation has eased sharply and is expected to dip further in the coming months.

Traders will also focus on the RBI’s 14-day variable rate reverse repo auction, where it aims to withdraw 2 trillion rupees from the banking system.