(Reuters) - Indian government bond yields traded marginally lower in the early session on Tuesday, as U.S. yields eased further on expectations that the Federal Reserve may slow down interest rate hikes.
The benchmark 10-year yield was at 7.3365%, as of 10:20 a.m. IST, after ending at 7.3427% on Monday.
There is only some incremental buying at the current levels, as a major bone of contention remains the inflation data as well as the federal budget, a trader with a state-run bank said.
U.S. Treasury prices gained further on Monday, with the 10-year yield easing near the crucial 3.50% level.
The rally in Treasury prices comes after data showed U.S. services activity contracted for the first time in more than 30 months in December and wage growth slowed.
The data bolstered bets that the Fed may slow down after raising its policy rate by 425 basis points in 2022.
Investors will turn their attention to the U.S. and India inflation data for December, due on Thursday.
India's retail inflation held steady in December, staying within the Reserve Bank of India's (RBI) comfort zone for a second month as moderation in food price rises was partly offset by elevated core inflation, a Reuters poll of economists found.
The Jan. 4-9 poll of 45 economists pegs inflation at 5.90% in December, against 5.88% in November. The RBI aims to maintain inflation within the 2%-6% band.
Major focus also remains on the federal budget due on Feb. 1, where the government will focus on fiscal consolidation according to a Reuters poll. The median forecast from 37 economists polled from Dec. 13 to Dec. 21 was for the government to limit borrowing to 6.0% of the gross domestic product.
The sentiment was also supported as Indian states are likely to borrow only 60 billion rupees ($729.77 million) through sale of bonds later in the day, one-third of 179 billion rupees scheduled.
