MUMBAI - Indian government bond yields started the New Year with a marginal uptick, as a higher-than-expected borrowing plan by states hurt demand, while traders awaited fresh triggers on interest rates.

The 10-year benchmark bond yield was at 7.1969% as of 10:00 a.m. IST on Monday, after closing at 7.1754% in the last session of 2023.

Bond yields fell on the last trading session of 2023. The benchmark bond yield also ended lower for the second consecutive month in December and closed the year with a drop of 15 basis points (bps).

Indian states aim to raise a record 4.13 trillion rupees ($49.67 billion) through the sale of bonds in January-March, the central bank said on post-market hours on Friday.

The quantum is higher than almost every market estimate. Traders had expected a borrowing of around 3.50 trillion rupees in the last quarter of the fiscal year that ends Mar. 31.

"There are no immediate positive factors to offset the impact of the discrepancy in the actual supply calendar and market expectations," a trader with a private bank said.

"Still, continued value purchase from investors, including state-run banks, will see the benchmark bond yield not rising beyond 7.20%."

Market participants expect foreign inflows, that swelled in October-December, to persist this year as well.

Last week, India's state-run banks posted their biggest weekly government bond purchases to wrap up 2023, and treasury officials anticipate banks will be large buyers this month.

The bond yield curve could "bull steepen" in 2024, according to traders, on expected interest rate cuts by the Federal Reserve and the Reserve Bank of India.

The 10-year U.S. yield stayed around the critical 3.85% level on Friday as investors anticipate a mild economic recession in the U.S. heading into 2024, which could push the Federal Reserve to cut rates from as early as March. ($1 = 83.1500 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)