MUMBAI: Indian government bond yields are expected to fall marginally in early session on Monday as states plan lower-than-scheduled quantum of debt sale for the week. Underlying sentiment, however, remained bearish, after hawkish comments from central banks.

The benchmark 7.26% 2033 bond yield is expected to be in the 7.00%-7.05% range after closing at 7.0354% in the previous session, a trader with a primary dealership said.

Lower state debt sale comes in as a positive surprise and should see a couple of basis points move downwards, the trader said.

“But benchmark yield is unlikely to test sub-7% levels anytime soon.” Indian states aim to raise 56 billion rupees ($683.68 million) through the sale of bonds on Tuesday, with the quantum being sharply lower than the scheduled 180 billion rupees.

States had raised more-than-expected funds in the last three auctions, with borrowing rising sharply to 654 billion rupees, after remaining low in the first month of the financial year.

Indian bond yields track US peers lower, debt sale to provide cues

Bond yields rose in the second half of last week after the Federal Reserve hinted at 50 basis points of more rate hikes in 2023.

The 10-year US yield was at 3.77%, while the two-year US yield was at 4.72%.

Still, many market participants expect the Fed to raise rates only once and then stop the hiking cycle. The odds of a rate hike in July stand at around 70%.

Traders will keenly eye the minutes of the Reserve Bank of India’s June meeting due on Thursday.

The central bank had kept interest rates unchanged for the second consecutive time at this meet, but said inflation needed to move towards its 4% target and that it would do “whatever is necessary to ensure that long-term inflation expectations remain firmly anchored”.

Shorter-end bond yields are expected to continue rising in the near term due to hawkish guidance from the local as well as global central banks, with the yield curve likely to flatten further.