Government bond yields: Government bond yields are anticipated to climb marginally in early trading on Tuesday as states prepare to raise a higher amount than initially scheduled through bond sales. The focus remains on inflation indicators.

The benchmark 10-year yield is forecasted to hover in the range of 7.01 per cent to 7.05 per cent, following its previous close of 7.0147 per cent, which marked the lowest level since June 14, 2023, according to a trader with a private bank.

The trader noted, “Since there was a strong attempt to break the 7 per cent level yesterday, which was not achieved, we may see some caution today and there could be a reversal of one-to-three basis points on the benchmark.”

Indian states aim to raise Rs 35,544 crore ($4.3 billion) through the sale of bonds, surpassing the scheduled Rs 32,532 crore. If successful, this would mark the first instance in seven weeks that states will exceed their borrowing calendar.

"Since the supply from the center has ceased, we would not see any major rise in yields, and even the revised higher supply would be absorbed," the bond trader explained.

Bond yields declined on Monday, tracking a decrease in US Treasury yields, amid weak economic data and recent comments from Federal Reserve Chair Jerome Powell, which have heightened expectations of a rate cut in June.

The 10-year US yield was below 4.10 per cent, after reaching 4.35 per cent a few days ago, with traders closely monitoring US inflation data due after Indian market hours later in the day.

This marks the last major economic indicator before the Fed policy decision next week. The odds for a rate cut in June stand at around 69 per cent, up from 64 per cent last week, according to the CME FedWatch tool.

Meanwhile, India's retail inflation data is also expected later in the day, forecasted to print at a four-month low of 5.02 per cent in February, according to a Reuters poll.

(With Reuters Inputs)