MUMBAI: Indian government bond yields are expected to rise marginally in early session on Thursday, after the US Federal Reserve kept rates unchanged as expected, but hinted at two more rate hikes in the next six months.

The benchmark 7.26% 2033 bond yield is expected to be in the 6.99%-7.04% range after closing at 7.0069% in the previous session, a trader with a primary dealership said.

US yields have not reacted much and hence, any major reaction is unlikely in local bonds as well, the trader said.

“The bias would be for a rising yield scenario, and focus will shift to Friday’s debt auction.”

The Fed on Wednesday signalled in new projections that borrowing costs may still need to rise, as the US central bank reacted to a stronger-than-expected economy and a slower decline in inflation.

Policymakers see two more 25-basis-point hikes this year.

Indian bond yields may dip as US inflation data boosts Fed pause bets

However, some analysts said the central bank might not implement a second rate hike.

“The Fed will push ahead with another 25 basis points hike in July, but weaker activity and employment, together with more encouraging signs that core inflation is moderating, will ultimately persuade the Fed that it does not need a final hike in September,” analysts at brokerage Capital Economics said.

This was the first pause by the US central bank after hiking rates by an aggregate of 500 basis points since March 2022.

Fed officials now expect funds rate to top out at 5.6% this year, up from the 5.1% in March projections, while nine of 18 officials see rate moving up another half of a percentage point beyond the current 5.00%-5.25% range, while three others feel it needs to go even higher.

The odds of a rate hike by the Fed in July stand at over 65%.

Meanwhile, New Delhi will raise 330 billion rupees ($4.02 billion) through the sale of bonds on Friday.

The auction includes 140 billion rupees of the benchmark paper.