MUMBAI: Indian bond yields are expected to trend higher in early trading on Monday, tracking a spike in US yields after a stronger-than-expected employment report caused the odds of another large rate cut from the Federal Reserve to plummet.

The benchmark 10-year bond yield is likely to move between 6.82% and 6.86%, compared with its previous close of 6.8339%, a trader with a private bank said.

“We should see the selling trend persist at least in the initial part of the day, as the jobs data has surprised everyone, and even if there are no major developments in escalation of the conflict, sentiment should tilt towards bears,” the trader said.

US nonfarm payrolls increased by 254,000 jobs in September, far above the 140,000 additions forecast by economists polled by Reuters, while the unemployment rate fell to 4.1%, data showed on Friday.

The 10-year US yield rose to its highest level in nearly two months following the data, and came within a touching distance of the critical 4% mark.

Indian bond yields seen slightly lower but major focus on US data

The note last yielded 3.97% in Asia hours.

Expectations of a 50 basis points rate cut by the Fed in November are completely off the table, with odds of a 25 bps cut soaring to 97% from last week.

Meanwhile, oil prices pared gains in early trade after charting their biggest weekly rise in over a year on Friday amid mounting threats of a region-wide war in the Middle East, with analysts attributing it to possible profit-taking.

Oil prices heavily affect India’s retail inflation as the country is one of the largest importers of the commodity.

Back home, traders await the Reserve Bank of India’s monetary policy decision, where it is expected to maintain a status quo, although expectations of a change in stance have grown.

Traders will also look out for an announcement from FTSE Russel for inclusion of Indian bonds in its emerging market debt index.