(Reuters) - Indian government bond yields are expected to be little changed in early trades on Wednesday, ahead of the U.S. Federal Reserve's much-awaited monetary policy decision later in the day.
The benchmark 10-year yield is likely to be in a 7.38%-7.43% band, a trader with a private bank said. The yield had ended five basis points lower at 7.3957% on Tuesday.
"We are back to 7.40% levels and any major incremental buying from this point needs a fresh trigger," the trader said.
"The Fed's forward guidance would be the major focus area as the rate action is already discounted in prices."
The Fed is widely expected raise interest rates by 75 basis points (bps) for the fourth consecutive time but, more crucially for the markets, its outlook and commentary on future increases will be key, especially after recent U.S. data pointed to a still strong economy, dampening speculation of a policy pivot.
Fed funds futures are pricing in an 87% chance of a 75-bps hike later in the day, with only a 50% chance of a same-sized increase in December, according to CME Group's FedWatch tool.
The 10-year U.S. yield stayed just above 4% mark but the two-year yield has risen above 4.50% handle again, after the U.S. jobs opening data.
Traders also await the outcome of the Reserve Bank of India's Thursday meeting that, Reuters reported, was most likely to discuss the central bank's response to the government after failing to meet its inflation target for three quarters in a row.
Meanwhile, Brent crude prices rose above $95 a barrel as data showed a surprise drop in U.S. crude stockpiles, suggesting demand is holding up. India is one of the largest crude importers and price moves have a direct impact on inflation.