MUMBAI: Indian government bond yields trended marginally higher in early trades at the start of the week in which the federal budget announcement remained the key, even as central bank’s surprising debt sale move weighed on investor sentiment.

The benchmark 10-year yield was at 6.9748% as of 10:10 a.m. on Monday, close to the key technical level of 6.98%, after closing at 6.9641% on Friday.

“We could see some selling as traders may cut positions after bond sale, and will look to lighten positions after auction of the benchmark paper on Friday,” a trader with a primary dealership said.

The Reserve Bank of India sold bonds worth 34.05 billion rupees ($407.06 million) in the week ended July 12 through the secondary market, its first such sale in more than eight months as the banking system’s liquidity surplus jumped.

as the move took most market participants by surprise, Sandeep Yadav, fixed income head at DSP Mutual Fund, said it was the writing on the wall, and suggested that investors opt for 20-year and above maturity bonds. India will announce the federal budget for the current financial year on Tuesday, with a major focus on the fiscal deficit target and the gross borrowing figure.

Median forecasts in a Reuters poll showed the fiscal deficit target at 5.1% of the gross domestic product and gross borrowing at 14.13 trillion rupees, the same as February’s interim budget.

India bonds not reacting to strong domestic growth, yields little changed

Still, many market participants feel the government has room to cut the fiscal deficit target by 20 basis points and borrowing by around 500 billion rupees after a better-than-estimated surplus transfer from the RBI and strong revenue collections.

Meanwhile, US yields rose on Friday, with the 10-year yield around 4.23% in Asian hours, and investors keenly awaiting reaction in Treasuries after US President Joe Biden abandoned his reelection bid and endorsing Vice President Kamala Harris as the party’s candidate for the November election.