Indian government bond yields started the New Year with a rising bias, with the benchmark bond yield posting its biggest weekly jump in three months, amid rising supply pressure and a reversal in the downtrend witnessed in the last few weeks in U.S. yields.

The 10-year benchmark bond yield ended at 7.2348% after closing at 7.2208% in the previous session. The yield rose 6 basis points on the week.

U.S. yields rose through the week, with the 10-year U.S. yield rising above 4%, after strong economic data led investors to pare down expectations of aggressive rate cuts from the Federal Reserve through 2024.

"Fed timing will also be driven by the fear of over-tightening. The labour markets and economic growth should provide signals for this. While Fed cuts in March are possible, we believe a mid-year rate cut, probably May, is more likely," said Sandeep Yadav, head of fixed income at DSP Mutual Fund.

The odds of a rate cut by the Fed in March stand at 65%, down from around 90% last week, according to the CME FedWatch tool. The odds of 150 basis points of rate cuts in 2024 have also dropped to 54%, down from 79% last week.

Investors now await U.S. December non-farm payroll data due after Indian market hours for more clarity on the Fed's thinking.

Meanwhile, Indian states spooked market sentiment after they announced a record borrowing of 4.13 trillion rupees ($49.67 billion) for the current quarter, and the spread between the 10-year yield with the benchmark jumped to the highest level in two years, with traders anticipating a further spike in the coming weeks.

Vikas Goel, managing director at the primary dealer PNB Gilts, said he expected the Indian benchmark bond yield to touch 6.75% in the coming months.

Traders will also keenly await action from foreign players, after foreign investors as well as foreign banks emerged as buyers this week.

This comes after foreign investors posted their biggest purchase in six years in 2023. ($1 = 83.1420 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Sohini Goswami)