However, moves are likely to remain limited, pending domestic retail inflation data due after day trading hours.
The 10-year benchmark return is expected to be between 7.28% and 7.33% for the session, a trader at a private bank said. The yield fell for a fifth consecutive session to 7.3069% on Friday, after falling 16 basis points last week.
“There is a bit of a pullback in US yields, and looking at the closing trend on Friday, we could see a reversal in local bond yields as well,” the trader said. “However, the inflation figure remains the main driver in the short term and bonds could be range bound today.”
Bond yields tumbled last week following a decline in US yields after consumer prices cooled in October, triggering speculation that the Federal Reserve will slow the pace of its rate hikes.
The US 10-year yield, which fell more than 30 basis points last week, rose seven basis points on Monday.
According to the CME’s FedWatch tool, the rate futures markets have now priced an 81% chance of a 50 basis point hike in December. The Fed has already raised rates by 375bps since March.
Consumer price inflation in India slowed to 6.73% in October due to weaker food price inflation and a solid base than a year ago, but remained stubbornly well above the upper limit 6% of the Reserve Bank of India’s tolerance band, according to a Reuters poll.
The forecasts ranged from 6.40% to 7.35%, with three quarters of respondents expecting a figure below 7.00%, while the reading was 7.41% in September.
Reading inflation will provide greater clarity on the trajectory of local interest rates. The RBI has raised the repo rate by 190bps to 5.90% since May.
** Brent crude oil futures rose 0.3% to $ 96.30 a barrel, after rising 2.5% in the previous session.
** The 10-year US Treasury yield was 3.8949% and the two-year yield was 4.4098%.