MUMBAI, Oct 3 (Reuters) - Indian government bond yields started the week higher, as U.S. Treasury yields continued to scale fresh peaks, with the 10-year rising to a fresh 16-year high.
India's 10-year benchmark 7.18% 2033 bond yield was at 7.2331% as of 10:00 a.m. IST on Tuesday, after ending at 7.2162% in the previous session. Indian financial markets were closed Monday for a local holiday.
The Indian 10-year yield rose six basis points (bps) last week, and gained 10 bps in July-September, posting its first quarterly rise in more than a year.
"The reaction in Indian bonds is mild compared with the quick rise in U.S. peers, but any fall in yields is unlikely," a trader with a state-run bank said.
U.S. yields have jumped as an agreement to avert a partial U.S. government shutdown reduced demand for the debt.
On Tuesday, the U.S. 10-year yield hit 4.70% for the first time since October 2007.
U.S. market rates have been rising on bets that the U.S. Federal Reserve may hike policy rates one more time in 2023, and also keep them higher for an extended period.
Losses in Indian bonds were capped as oil prices eased, with the benchmark Brent crude oil easing below $90 per barrel.
The contract had risen above $97.50 per barrel last week, its highest in nearly a year.
Bond market sentiment also remained supported after the inclusion of Indian bonds in JPMorgan's emerging market debt index. This has opened the door for more foreign inflows.
India will borrow 6.55 trillion rupees ($78.73 billion) through bond issues in the October-March period. This includes 1.45 trillion rupees of 10-year bonds, nearly one-fourth of the fiscal second half borrowing.
Traders also await the Reserve Bank of India's monetary policy decision due on Friday. The RBI is expected to maintain status quo on rates. ($1 = 83.1920 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)