By Dharamraj Dhutia
MUMBAI, Dec 5 (Reuters) - Indian government bond yields were trading sideways in early session on Tuesday, with traders eyeing demand at a state debt sale as well as the local central bank's policy decision later this week.
The 10-year benchmark bond yield IN071833G=CC was at 7.2637% as of 10:00 a.m. IST, after ending the previous session at 7.2699%.
"We are at that time of the week, when traders just would not want to do much and wait for the central bank's stance," a trader with a state-run bank said.
"Still, the demand for state debt, especially the spreads over government bond yields could provide some cues."
Indian states aim to raise 151.32 billion rupees ($1.81 billion) through sale of bonds later in the day, with the quantum lower than 263.50 billion rupees as per the borrowing calendar.
States have been borrowing more than planned since the start of the quarter, which has pushed up yield spreads over federal government bonds, as the market expects a rise in gross borrowing for states in the current financial year.
Indian states may gross borrow a record 9.2 trillion rupees in the current fiscal, against a previous estimate of 8.5 trillion rupees, IDFC First Bank said in a note.
The Reserve Bank of India's (RBI) monetary policy decision is due on Friday and the central bank is expected to hold rates at 6.50% for a fifth consecutive meeting, according to a Reuters poll.
Market participants expect the policy tone to remain on the hawkish side, which is holding Indian bond yields steady despite a sharp plunge in U.S. Treasury yields in the recent past.
The U.S. 10-year yield was hovering around the 4.25% mark in Asia hours, down over 75 basis points over the last month-and-a-half, amid optimism of rate cuts by the Federal Reserve early next year.
The probability of a rate cut by Fed in March stands at around 60%. FEDWATCH
($1 = 83.3760 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)
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