MUMBAI, Dec 4 (Reuters) - Indian government bond yields fell at the start of the week, reacting to another drop in their U.S. peers, while sentiment was boosted as India's ruling party won key state elections.
India's 10-year benchmark bond yield was at 7.2636% as of 10:00 a.m. IST, after ending the previous session at 7.2899%.
"There is a major reaction to the fall in U.S. 10-year yield, which seems to be sustaining now at around 4.25% levels," a trader with a state-run bank said.
Meanwhile, in India, "even the little bit of political uncertainty has now been put on the backburner," he added.
U.S. Treasury yields plunged on Friday after comments from U.S. Federal Reserve Chair Jerome Powell fanned optimism that the central bank was done hiking rates, while weak manufacturing sector data also reaffirmed bets of rate cuts.
"Having come so far so quickly, the Federal Open Market Committee is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced," Powell said.
The U.S. 10-year yield fell to its lowest level in three months, and was trading around the 4.25% handle, with the probability of a rate cut in March now rising above 66%, and that in May a certainty with near 100%.
Oil prices also eased, with the benchmark Brent crude contract below $80 per barrel mark.
India's ruling nationalist Bharatiya Janata Party (BJP) won regional votes in three out of four major states, in a big boost for Prime Minister Narendra Modi ahead of national elections due by May.
Nomura said, as some investors were worried that a poor showing by BJP would increase the risk of more fiscal populism, the actual results should calm such fears.
Traders said this would give more confidence to foreign investors that have been investing heavily in government bonds since the last 10 weeks. (Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)
