MUMBAI: Indian government bond yields are likely to trade largely unchanged on Tuesday, as traders await fresh supply through state debt sales, while lower US yields continue to aid sentiment.

The 10-year benchmark bond yield is expected to trade in the 7.14%-7.18% range, after closing at 7.1584% in the previous session, a trader with a private bank said.

“Bonds are at levels, where there should be some consolidation, as a sustained break of 7.15% for the benchmark is crucial for any further downward move,” the trader added.

Indian states aim to raise 195.92 billion rupees ($2.36 billion) through the sale of bonds in their penultimate auction for 2023, and the quantum is just marginally higher than the schedule.

US yields were lower, with the 10-year yield persisting around 3.95%, as the Federal Reserve signalled that policy tightening is over and projected three rate cuts in 2024. Markets are now pricing in a 69% probability of the Fed cutting rates in March and a 96% probability of a cut in May.

India bond yields may dip as sentiment remains positive

Even though the dot plot shows 75 bps of rate cuts in 2024, markets are pricing in 125 bps of rate action. Increasing possibilities of Fed rate cuts have also led to speculations of a similar move by the Reserve Bank of India, even as it had maintained a cautious tone while delivering its policy decision earlier in December.

The minutes of the RBI policy meeting are due this week, and the focus will remain on the thinking of central bank members about the interest rate trajectory in 2024.

Local bond yields are also easing as continued foreign purchases before the scheduled index inclusion and attractive yields aid sentiment.

They bought around 120 billion rupees of government bonds in December, after 127 billion rupees in November.