MUMBAI: Indian government bond yields were largely unchanged in the early session on Tuesday, with eyes on demand and cutoff yields for heavy state debt auctions.

India’s benchmark 10-year yield was at 7.0645% as of 10:00 a.m. IST, following its previous close of 7.0642%.

“With no other trigger in sight, the market could take cues from state debt cutoffs to get more clarity on investment appetite, which would be a key driver in the next few weeks,” a trader with a state-run bank said.

Indian states aim to raise 328.49 billion rupees ($3.96 billion) through the sale of bonds later in the day.

While the quantum is lower than scheduled, it is highest in the last three months.

State bond auctions will be a crucial guiding factor in the absence of federal government debt sales, which ended on Feb. 16 for the current fiscal year.

Market participants continue to expect overall states’ borrowing for this quarter and the financial year to undershoot the calendar by a wide margin.

Meanwhile, US Treasury yields remained elevated as hopes of early rate cuts from the Federal Reserve ebbed further after comments from officials last week suggested the central bank will take its time cutting interest rates, and focus would remain on bringing down inflation.

India bond yields edge lower as US peers retreat

The odds of a rate cut in May have eased to below 17% from over 30% last week, according to CME FedWatch tool.

Domestic investors have also lowered expectations of rate cuts by the Reserve Bank of India, and expect the action to be pushed to October-December, as the central bank aims to meet the 4% inflation target on a sustainable basis.

A high real interest rate in India could prevent private investments from picking up and hold the country back from achieving its true growth potential, Jayant Varma, an external member of the monetary policy committee, said on Friday.