INDIA BONDS-Indian bond yields seen little changed as US yields consolidate

By Dharamraj Dhutia

MUMBAI, Jan 22 (Reuters) - Indian government bond yields are expected to be largely unchanged in early deals on Wednesday, as U.S. Treasury yields stabilise, while the market awaits strong positive triggers for any further decline in yields.

The 10-year bond yield IN067934G=CC is likely to move between 6.72% and 6.76%, a trader with a private bank said, compared with the previous close of 6.7373%.

"U.S. yields did not react much in the first trading session after Donald Trump took over as President, so local bonds are expected to be well behaved with the benchmark bond yield consolidating in the 6.73%-6.75% band," the trader said.

U.S. yields were largely unchanged after registering a fall in Asia hours on Tuesday, after Trump refrained from imposing major tariffs on his first day in office, even as he said imports from Canada and Mexico might attract 25% tariffs from Feb. 1.

The 10-year U.S. yield eased on Tuesday and was around 4.59% levels in early Asian trading hours on Wednesday, while the two-year yield was around 4.28%, with the gap between the two at its lowest since December-end.

Still, Trump's proposed tariff policies will continue to be a key focus area and will drive volatility, as these may add to inflation further reducing the possibility of interest rate cuts from the Federal Reserve in 2025.

U.S. rate futures have now priced in 38 basis points of interest rate cuts in 2025, with the next 25 bp cut seen in June.

In India, the spotlight will remain on the central bank's next step towards liquidity management, after it began conducting daily repo auctions from the previous week.

Apart from this, the focus will also remain on debt auction due on Friday and central government's federal budget announcement scheduled on Feb. 1, which will provide a major directional trigger.

New Delhi aims to raise 320 billion rupees ($3.70 billion) through bond sales on Friday, with the auction including 220 billion rupees of benchmark note.

KEY INDICATORS:

Brent crude futures LCOc1 were little changed at $79.30 per barrel, after easing 1.1% in the previous session

Ten-year U.S. Treasury yield US10YT=RR at 4.5480%; two-year yield US2YT=RR at 4.2297%

RBI to conduct 1-day variable rate repo auction for 1.25 trillion rupees

RBI to auction treasury bills worth 280 billion rupees

($1 = 86.4850 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Rashmi Aich)

((Dharamraj.dhutia@tr.com))