MUMBAI: Indian government bond yields were little changed in the early session on Tuesday ahead of a state debt auction later in the day, where demand would be key in guiding direction for yields.

The benchmark 7.26% 2033 bond yield was trading at 7.1145% as of 10:00 a.m. IST, after ending the previous session at 7.1192%, the highest since April 28.

“We may be in for a range-bound week … after a volatile last week,” a trader with a state-run bank said. “If the cutoffs are weaker, then we may see a further rise in yields.”

Indian bond yields marginally down as breach of key level ups value buying

Nine states aim to raise 162 billion rupees ($1.98 billion) through the sale of bonds later in the day in a quarter that is laden with supply.

The yield spread between central government and state debt is set to widen, with investors seeking a premium on state bonds, traders told Reuters.

Market participants also expect central government bond yields to rise further due to heavy debt supply and diminishing chances of a rate cut before the first half of next year.

India plans to raise 4.47 trillion rupees through bond sales between July and September, while states are aiming to raise 2.37 trillion rupees.

Globally, traders remain cautious as U.S. yields remain elevated and close to key levels, a break of which could spur a sharp upside move.

The 10-year note was trading close to the crucial 3.85% mark, while the two-year yield, a closer indicator of interest rate expectations, is threatening to cross the 5% handle.

Strong U.S. data has increased the bets of further Federal Reserve rate hikes, with the odds of an increase in July surging to around 86%.