MUMBAI, March 14 (Reuters) - Indian government bond yields trading sideways, with a cautious bias, in early trades on Thursday, as U.S. Treasury yields rose further in the run-up to the Federal Reserve's monetary policy decision due next week.
The benchmark 10-year yield was at 7.0448% as of 10:00 a.m. IST, following its previous close of 7.0405%.
"There will be consolidation around the 7.05% levels for the benchmark and till the Fed decision, we may not see attempts to break the 7% levels," a trader said.
The 10-year U.S. yield hit 4.20% on Wednesday as the country's recent inflation data stubbornly refuses to ease, dampening hopes of aggressive rate cuts by the Fed.
The Fed's monetary policy decision is due on Wednesday and though no rate cut is expected, the worry is that some officials may dial back their rate cut expectations for 2024.
The odds of a rate cut in May have gone down drastically to 7% from 23% a week ago, while that for June have also eased slightly, according to the CME FedWatch tool.
Traders note that rising oil prices, with benchmark Brent crude contract moving towards $85 per barrel, are also weighing on the minds of traders.
Sustained elevated oil prices may seep into local retail inflation and further delay rate easing by the Reserve Bank of India, which is focused on staying pat until inflation eases towards its 4% target on a sustainable basis.
Still, favourable demand-supply dynamics and sustained foreign inflows in government bonds will continue to cap any major rise in yields for this month. (Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)
