By Dharamraj Dhutia
MUMBAI (Reuters) - Indian government bond yields ended slightly higher in thin trading volumes on Wednesday, amid caution ahead of the U.S. Federal Reserve's much-awaited monetary policy decision later in the day, with the focus on commentary for coming months.
The benchmark 10-year bond yield ended at 7.4044%. The yield had ended five basis points lower at 7.3957% on Tuesday.
"Today's Fed action is already priced in. But there was some caution with regards to what would be its guidance as the market is widely divided over that, which will also have an impact on India's monetary policy decisions," said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.
The Fed is widely expected to raise interest rates by 75 basis points (bps) for the fourth consecutive time but its outlook and commentary on future increases will be crucial for the market, especially after recent U.S. data pointed to a still strong economy, dampening expectations of a policy pivot.
Fed funds futures are pricing in an 87% chance of a 75-bps hike later in the day, with only a 50% chance of a same-sized increase at the next Fed meeting in mid-December, according to CME Group's FedWatch tool.
Meanwhile, the 91-day and 182-day treasury bill yields remained at near multi-year highs on concerns over tight liquidity over the medium term, analysts said.
The Reserve Bank of India today sold 91-day notes at 6.47% cut-off yield, the highest since May 2019, while 182-day bills were sold at 6.80% yield, the highest since January 2019.
Yields across both securities rose 7-8 basis points over the previous week's auction.
Traders are also awaiting the outcome of the RBI'S special meeting on Thursday, called to discuss the central bank's response to the government after failing to meet its inflation target for three straight quarters.
But the central bank will not immediately release details of its written response as it does not have the authority to do so, RBI Governor Shaktikanta Das said earlier in the day.
(Reporting by Dharamraj Lalit Dhutia; Editing by Savio D'Souza)