India bond yields to track US rates; downside largely capped

By Nimesh Vora

MUMBAI, Nov 26 (Reuters) - Indian bond yields are likely to open little changed on Tuesday following the dip in the previous session, with traders keeping an eye on U.S. Treasury yields.

The benchmark 10-year bond yield is expected in a 6.81%-6.84% range, having dipped about two basis points on Monday to 6.8226% largely due to a dip in U.S. Treasury yields.

The U.S. 10-year Treasury yield tumbled sixteen basis points on Monday on the back of U.S. Donald Trump's pick for Secretary of the Treasury, which was viewed favourably by bond investors.

The "sympathetic" move lower (for India bond yields) in response to the rally in U.S. Treasuries will "not carry on", a fixed-income trader at a bank said.

For the 10-year to move below 6.75-6.80% and hold there, there "will need to be visibility on rate cuts (from the Reserve Bank of India)", he said.

The higher-than-expected October inflation reading, largely due to the spike in food prices, has prompted traders to price out a rate cut by India's central bank next month. Views differ on whether the RBI will cut rates at their next meeting in February.

For conditions to be conducive for a rate cut in February, a major reduction in food prices will be needed in the coming months, according to IDFC Bank.

U.S. yields, meanwhile, were marginally higher in Asia trading following Monday's drop. The dollar rallied and the rupee was poised to open weaker after Trump said he would impose tariffs on all imports from Canada and Mexico and levy an additional tariff on Chinese products.

KEY INDICATORS: ** Brent crude futures up 0.2% at $73.16 per barrel, having dropped 3% on Monday ** Ten-year U.S. Treasury yield at 4.2800%; two-year yield at 4.2664% ** Twelve Indian states to raise 320 billion rupees via sale of bonds (Reporting by Nimesh Vora; Editing by Janane Venkatraman)