(Reuters) - Indian government bond yields rose on Wednesday after the 10-year U.S. Treasury yield hit 4% for the first time since April 2010, as nervousness over high policy rates intensified.
The benchmark Indian 10-year government bond yield was at 7.3362% as of 0440 GMT. The yield had fallen seven basis points and ended at 7.2915% on Tuesday.
"Bonds are reacting to U.S. yields, but still the move is very muted as index inclusion theme is still playing on the minds of traders," a trader with a primary dealership said.
In the previous session, bond had yields eased, as investors stayed hopeful over inclusion of Indian debt into global bond indexes in the near term.
However, yields were pressured tracking U.S. Treasuries that firmed up, as investors braced for higher interest rates that could possibly remain longer than anticipated.
The two-year U.S. Treasury yield, which is considered to be an indication of interest rate expectations, was close to its highest level in 15 years.
On Tuesday, Chicago Fed President Charles Evans said the U.S. Federal Reserve will need to raise interest rates by at least another percentage point this year, a more aggressive stance than he had previously embraced.
Last week, the U.S. Federal Reserve hiked interest rates by 75 bps for the third consecutive time and Fed Chair Jerome Powell said central bank officials were "strongly resolved" to bringing down inflation.
Indian bond traders are pricing in a hawkish stance from the Reserve Bank of India, in line with global cues.
The RBI's policy decision is due on Friday, with 26 of 51 economists in a Reuters poll predicting a 50-basis-point hike, which would take the repo rate to 5.90%.
The RBI has already raised rates by 140 basis points between May and August to tackle inflation that has stayed above the central bank's tolerance level for eight straight months to August.