MUMBAI: Indian government bond yields fell early in the session on Tuesday, amid investor optimism over the country’s likely inclusion in FTSE Russell’s emerging market debt index and a thin possibility of a change in the central bank’s stance.

The benchmark 10-year bond yield was at 6.8263% as of 10:00 a.m. IST, compared with its previous close of 6.8507%.

“Bulls are active right from the start and hence we saw an immediate recovery to Monday’s levels before the selloff in the last half an hour,” a trader with a primary dealership said.

“Upside risks are less at these levels, and with the way local banks bought yesterday, some confidence has also returned.”

The announcement from FTSE Russell on its decision to include Indian bonds in its emerging market debt index is due later in the day, with most market participants expecting a positive outcome after the index provider had favourable interactions with investors.

The Reserve Bank of India’s policy decision on Wednesday will also be a major trigger for the market.

The central bank is expected to maintain a status quo on rates, while a small number of investors are betting on the probability of a change in stance to “neutral”, opening the door to rate cuts later.

Indian bond yields may track US peers lower

Meanwhile, US yields continued their rise, with the 10-year yield climbing above 4% for the first time in more than two months on Monday, after strong nonfarm payroll data dashed hopes of 75 basis points of cuts by the Federal Reserve in 2024.

Expectations of a 25-bp cut in November are at 88%, while bets of a status quo rose to 12% from less than 10% a day ago.

Meanwhile, 11 Indian states will raise 187 billion rupees ($2.23 billion) via the sale of bonds later in the day.