Updates at market open

By Dharamraj Dhutia

MUMBAI, Feb 12 (Reuters) - Indian government bonds edged lower early on Thursday, paring recent gains as U.S. Treasury yields rose, with investors awaiting domestic inflation data later in the day.

The 10-year 6.48% 2035 bond yield was at 6.7258% at 9:50 a.m. IST after ending at 6.7088% on Wednesday, down 5 basis points over the past two sessions.

"The only hope of breaking 6.70% on the downside was a further decline in U.S. yields, but since that is not the case anymore, we could see the 10-year bond yield settling around 6.75% levels," trader with a primary dealership said.

U.S. Treasury yields rose overnight, after a report stated non-farm payrolls increased by 130,000 jobs in January following a downwardly revised 48,000 rise in December. Economists polled by Reuters had called for a 70,000 increase.

Expectations that the Federal Reserve could cut rates in the near term rose after weak retail sales data, but stronger jobs numbers later pushed U.S. yields higher.

The 10-year U.S. yield climbed to 4.18% after touching 4.1250% on Wednesday.

Back home, India’s consumer inflation is likely to have risen for a third straight month to 2.4% in January, a Reuters poll showed. The month marks the first reading under a new price series and a return within the central bank’s 2%–6% target band since August.

DBS Bank said the new series is unlikely to affect policy in the near term and expects rates to remain on hold.

RATES

India's longer tenor overnight index swap rate moved up, but the shorter duration swaps were not yet traded.

The one-year OIS rate INR1YMIBROIS=CC ended at 5.52% and the two-year rate INR2YMIBROIS=CC ended at 5.67% on Wednesday. The five-year OIS rate INR5YMIBROIS=CC was 2 bps higher at 3.16%.

(Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman and Nivedita Bhattacharjee)

((Dharamraj.dhutia@tr.com))