INDIA BONDS-India bond yields may inch higher tracking US peers, oil

By Dharamraj Dhutia

MUMBAI, July 8 (Reuters) - Indian government bond yields are likely to rise marginally in early deals on Tuesday, in line with the uptick in U.S. Treasury yields and oil prices.

The yield on the benchmark 10-year bond IN063335G=CC is expected to trade between 6.29% and 6.31%, a trader at a private bank said, after closing at 6.2933% on Monday. The five-year 6.75% 2029 bond IN067529G=CC ended at 5.9472%.

"Bonds should trade with a bearish bias today, as Treasury yields and oil prices, both have risen, while locally there is no major positive driver to offset that," the trader said.

U.S. Treasury yields rose on Monday as President Donald Trump announced tariffs on numerous trading partners, including a 25% levy on imports from Japan and South Korea beginning August 1.

Yields have been on an uptrend as traders pared bets on the quantum of rate cuts by the Federal Reserve this year after jobs data for June on Thursday showed employers added more jobs than economists had forecast.

Meanwhile, oil prices also rise as signs of strong demand outweighed the impact from a higher-than-expected output hike for August from Organization of the Petroleum Exporting Countries and allies.

Back home, traders continue to eye the next action from the Reserve Bank of India on liquidity management, as banking system liquidity surplus remains above 4 trillion rupees ($46.66 billion), with overnight rates moving below the floor of the monetary policy corridor.

On Friday, the RBI conducted a seven-day variable rate reverse repo for just 1 trillion rupees, despite a liquidity surplus of more than 4 trillion rupees and overnight rates hovering near the floor of the policy corridor.

RATES

India's overnight index swap rates are unlikely to see any major moves on Tuesday, amid shallow trading volumes.

The one-year INR1YMIBROIS=CC OIS rate ended at 5.51% and the two-year OIS rate INR2YMIBROIS=CC at 5.48%. The liquid five-year INR5YMIBROIS=CC finished at 5.68% on Monday.

KEY INDICATORS:

** Brent crude futures LCOc1 fell 0.6% to $69.20 per barrel after rising 1.9% in previous session

** Ten-year U.S. Treasury yield US10YT=RR at 4.3400%; two-year yield US2YT=RR at 3.8822%

** Indian states aim to raise 133 billion rupees via sale of bonds

($1 = 85.7230 Indian rupees)