India bond yields little changed as traders await fresh triggers

Indian government bond yields ended flat on Tuesday as traders awaited fresh triggers, while the 10-year U.S. counterpart rising above the crucial 4.20% mark discouraged investors.

The benchmark 7.26% 2033 bond yield ended at 7.2068% after closing the previous session at 7.2047%.

The yield rose on Monday, which resulted in investors refraining from aggressive buying. The benchmark yield is likely to remain around the 7.20% level after it failed to breach 7.15% on the downside last week.

"There could be an upward pressure on U.S. long-term rates till Fed pivots, which could prevent any downwards move in Indian bond yields," said Abhishek Bisen, fixed income head at Kotak Mahindra Asset Management.

The 10-year U.S. yield moved above the 4.20% level on Tuesday, sustaining the rise after the August non-farm payrolls report showed that the world's largest economy added more jobs than expected last month.

However, the odds of another rate hike by the Federal Reserve later this month eased to around 7%.

Market participants now await local as well as U.S. inflation prints due next week.

India's August inflation reading is expected to stay elevated after retail inflation spiked to a 15-month high of 7.44% in July from 4.87% in June.

DBS expects the inflation reading to remain above 7% in August and slip to 6% levels in September.

Traders are also assessing the evolving domestic liquidity situation ahead of the Reserve Bank of India's review of its decision to levy incremental cash reserve ratio on banks due Sept. 8.

Indian states raised 156.9 billion rupees ($1.89 billion) through a sale of bonds earlier in the day, with cut-offs on the expected lines.

On Friday, New Delhi aims to raise 330 billion rupees via a debt sale, including the new 10-year 7.18% 2033 bond that will replace the existing benchmark paper soon.