INDIA BONDS-India bond yields rise slightly tracking US Treasuries; traders eye RBI policy

By Khushi Malhotra

MUMBAI, April 8 (Reuters) - Indian government bond yields were marginally higher in early deals on Tuesday, tracking a sharp uptick in U.S. peers, even as the local central bank's monetary policy decision remains a major trigger.

The benchmark 10-year bond yield IN067934G=CC was at 6.4866% as of 10:30 a.m., up from Monday's close of 6.4836%.

Its U.S. counterpart surged 17 basis points on Monday to 4.15%, posting its largest daily leap in a year, on rising optimism that some countries may negotiate deals with U.S. President Donald Trump to avoid trade tariffs.

Last week, Trump announced his plan to enforce a 10% baseline tariff on all imports to the United States, along with steeper reciprocal tariffs on the country's biggest trading partners.

The domestic market, which often mirrors the movement in the U.S. treasury yields, has also grown wary amid trade war fears.

"An escalating trade war may trigger a slowdown, which is positive for bonds but in case of any bigger disruption (due to tariffs), it may trigger inflation as well," said a trader with a primary dealership.

"The situation is a bit tricky, so we are booking profits on each rise and buying at any dip."

Traders are now awaiting the Reserve Bank of India's monetary policy decision, due on Wednesday, to gauge further moves.

The RBI is widely to expected to cut rates multiple times this year, starting with a 25 basis point cut this week.

Market is also anticipating additional supportive measures such as a change in stance or a larger cut.

The RBI is scheduled to purchase bonds worth 200 billion rupees($2.33 billion) later in the day, its second tranche of four planned for April.

The central bank has already infused 5.2 trillion rupees into the banking system since January through debt purchases and foreign exchange swaps.

($1 = 85.8610 Indian rupees)