INDIA BONDS-Indian bond yields little changed, traders await central bank rate moves

By Dharamraj Dhutia MUMBAI, March 15 (Reuters) - Indian government bond yields held steady in early session on Wednesday, while elevated inflation readings renewed focus on upcoming policy meetings. The 10-year benchmark 7.26% 2032 bond yield was at 7.3796% as of 10:00 a.m. IST, after closing higher at 7.3841% on Tuesday. "As expected, the benchmark bond yield is facing stiff resistance around the 7.38% level and the rally may have been over for the time being," a trader with a state-run bank said. U.S. Treasury yields recovered to end higher on Tuesday and sustained momentum on Wednesday after a stubbornly high inflation reading in February ahead of the Federal Reserve's policy decision due next week.

The two-year U.S. yield, which is a closer indicator of interest rate expectations, has jumped over 25 basis points (bps) since Monday's close and was at 4.30%.

It had dropped over 100 bps in three sessions to Monday as the collapse of a lender raised bets of an accommodative Fed. The 10-year U.S. yield is up 15 bps since Monday's close and was trading at 3.67%. The Fed funds futures are now pricing in an 81% chance for a 25-bps hike in March, and 19% for rates being left unchanged. At home, India's retail inflation was at 6.44% in February, remaining above the Reserve Bank of India's upper threshold for the second straight month, cementing bets of another rate hike in April. The RBI raised the repo rate by 250 bps in this financial year to fight inflationary pressures. The central bank will auction Treasury bills worth 390 billion rupees ($4.74 billion) later in the day. The auction comes after the cutoff yield on 364-day notes rose above the benchmark paper last week. A source told Reuters on Friday that the government is concerned about rising T-bill yields and will take appropriate remedial measures. ($1 = 82.3500 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Sohini Goswami)