MUMBAI, May 27 (Reuters) - Indian government bond yields were trading marginally lower at the start of the week, as sentiment remained upbeat on hopes the central bank's hefty surplus transfer will improve the government's fiscal position.
The benchmark 10-year yield was at 6.9924% as of 10:00 a.m. IST on Monday, following its previous close of 6.9988%.
"Unless there is no new negative trigger or U.S. yields break 4.50% strongly on the upside, the benchmark should remain in a 6.99%-7.00% band, with a slow drift towards 6.95% on the cards," a trader with a private bank said.
Bond yields have fallen for five straight weeks.
The Reserve Bank of India's board last week approved the transfer of a record 2.11 trillion rupees ($25.39 billion) as surplus to the government for fiscal 2024.
The government's fiscal position is expected to strengthen after the higher-than-expected dividend transfer and could lower bond supply, traders said.
New Delhi has already cut the supply of Treasury bills by 600 billion rupees till end of June, and has bought back securities worth around 179 billion rupees in May.
According to multiple sources, the government is open to buying back more bonds and cutting T-bill supply for short-term cash management, while decisions on lowering fiscal deficit and market borrowings will be taken after the general election results.
Meanwhile, foreign inflows in bonds that are bound to be included in JPMorgan's emerging market debt index from June 28, have turned positive for this month.
A recent upward drift in U.S. bond yields has partially offset the bullish momentum.
The U.S. 10-year yield is nearing the 4.50% mark, as latest data and commentary from the Federal Reserve have once again led to trimming down of rate cuts bets.
($1 = 83.1030 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)
