MUMBAI, March 14 (Reuters) - Indian government bond yields are expected to move marginally higher in early trades on Thursday, as Treasury yields resumed their rising trend in the run-up to the Federal Reserve's monetary policy decision after a brief fall in recent days.
The benchmark 10-year yield is expected to drift in the 7.03%-7.07% range, following its previous close of 7.0405%, a trader with a private bank said.
"With the 10-year Treasury yield back to near 4.20% levels, we could see some impact on sentiment, but any large selloff can be safely ruled out in the Indian fixed income market, as broader fundamentals and demand-supply dynamics seem favourable," the trader said.
U.S. yields continued to rise, as traders speculated that stubborn inflation reading, evident in recent data, may convince the Fed to hold off cutting rates aggressively.
The consumer price index rose 0.4% last month after climbing 0.3% in January and for the 12 months through February, the CPI increased 3.2%, after advancing 3.1% in January.
The data comes just a week before the Fed's monetary policy decision and has raised concerns that some members may tone down their rate cut expectations for 2024.
While the odds for a rate cut in June are down to 67% from 74% last month, the odds of such an action in May have gone down drastically to 7% from 23% a week ago, according to the CME FedWatch tool.
Data dependence will remain the order of the day at next week's Fed meeting, with officials likely to leave their interest rate projections broadly unchanged, said Capital Economics.
"We continue to expect the first rate cut in June, although that will probably rely on better news on inflation over the next few months."
Traders also pointed out that rising oil prices have stayed on the back of the minds of local bond traders. Sustained elevated oil prices may seep into local retail inflation and further delay rate easing by the Reserve Bank of India. KEY INDICATORS: ** Brent crude futures 0.2% higher at $84.20 per barrel, after rising 2.6% in the previous session ** Ten-year U.S. Treasury yield at 4.1899%, two-year yield at 4.6324% (Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman )
